With the enduring strength of South Africa’s commercial real estate industry, the office market recovery is further underscoring the success of the commercial real estate sector. This trend is especially pronounced in Gauteng - primarily driven by the continuing growth of e-commerce, creating a surging demand for modern warehousing and logistics facilities and top grade office space. This trend is seen across major cities in Africa.
SA’s Office Market driving commercial sector success
According to Knight Frank’s Africa Offices Market Dashboard H1 2025, demand for this sector is showing a definite veer towards quality and an ever increasing gap between prime and secondary office stock is noted. According to this report, high-grade office space reached record levels during the first half of this year, in what is now termed “‘flight-to-quality- trend. More than 90% of available A-grade office buildings are occupied.
The flight-to-quality trend across SA’s office market sees businesses prioritizing prime, modern and well-located spaces over older, less efficient buildings to attract top talent, foster productivity and align with Environmental, Social and Governance Goals (ESG)goals. This preference is driving down vacancies and increasing demand for Grade A offices, while simultaneously increasing challenges for secondary properties. In SA, a Grade A office building, according to the Property Owners' Association (SAPOA), is a top-quality, prestigious office property which is relatively new or recently renovated. It should feature modern, high-quality finishes, advanced amenities such as smart technology and high-speed elevators, superior security, a prime location with good accessibility, excellent on-site parking and professional management. These buildings offer the highest standard in the market, typically commanding higher rental rates due to their premium features and lower environmental impact and focus on employee wellness.
Gauteng is still the country’s commercial powerhouse with market rentals for decentralised Grade-A office space growing year-on-year. This makes Johannesburg even more attractive as the prime area, Sandton, offers lower rentals for ESG-compliant assets than in Cape Town. A-Grade office rentals in Cape Town were recently R166.78 priced at per square meter, while in Gauteng, (specifically Sandton), they were R157.77 per square meter. With the higher cost of residential properties in Cape Town and surrounds, this makes Gauteng the top contender in this market at the moment.
In the first quarter of 2025, nominal gross market rentals for industrial space in SA saw a robust increase of 7.3% year-on-year, a rate surpassing pre-pandemic levels. The average national vacancy rate for this sector remains at a remarkably low 3.7%, a figure which has been stable for the past two years. In Gauteng, key hubs such as Ekurhuleni and the Central Witwatersrand are seeing solid rental growth, a testament to their strategic importance as national distribution centres.
Warehousing
Developers are not engaging in widespread speculative building, which helps to keep vacancy rates low and rental growth strong. Instead, the focus is on developing modern, next-generation warehouses with high ceilings and strong floors to accommodate advanced racking systems, essential for e-commerce and logistics companies.
“Demand for purpose-built warehouses in SA is currently very strong and rapidly growing, driven by the e-commerce boom, evolving supply chain strategies from "just-in-time" to "just-in-case" models, increasing urbanization and a renewed focus on local manufacturing. This high demand is characterized by significant rental growth, making it a preferred sector for investors and developers with many growth opportunities. The demand for these purpose-built facilities is so high that they are leased quickly, leaving little room for discounts” Raul Flores, CEO of TITAN Property Group
The transition from a "Just-in-Time" (JIT) to a "Just-in-Case" (JIC) supply chain model involves a shift from minimizing inventory and costs for maximum efficiency to increasing inventory and fostering robustness to ensure preparedness against unexpected disruptions. JIT, popularized by Toyota, relies on receiving materials just as they are needed, reducing waste but creating vulnerability to disruptions, while the JIC model uses higher inventory levels and stronger supplier relationships to build resilience, though it comes with increased costs and potential inefficiencies.
Johannesburg especially experiences high warehouse rental demand driven by its economic hub status, a large skilled workforce and a mix of industrial and e-commerce tenants. Across Cape Town demand is an also showing double-digit rental growth and high prices, fuelled by strong e-commerce, a thriving tech sector and the demand for suitable warehousing for especially agricultural exports and imports such as fruit and wine.
Johannesburg Demand Drivers
As the economic centre of Gauteng, Jozi offers a larger pool of skilled workers and a strong e-commerce and industrial base, creating high demand for warehouse space. Serving a broad range of businesses - from e-commerce to various industrial and light manufacturing sectors – it has a diverse tenant base.
Cape Town Demand Drivers
The Western Cape is experiencing very low vacancy rates across its industrial areas, limiting options and pushing turnover. Growing e-commerce and a booming tech industry in Cape Town are significant drivers of warehouse demand, requiring logistics and distribution centres. Its strategic location makes it a key hub for exporting agricultural products and imported goods for regional distribution. The City is also known for its well-managed municipal services, superior infrastructure and governance, making it attractive to investors and tenants.
Cape Town caters heavily to exports and imports, while Johannesburg's industrial and skilled labour advantages serve a different range of market needs.
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