Seen Here: Siphamandla Mkhwanazi, FNB Senior Economist Photo Credit: Supplied
JOHANNESBURG – South Africa’s economy may still be navigating a challenging environment, but growing optimism is emerging that lower inflation, declining interest rates and ongoing structural reforms will gradually restore momentum to both the economy and the commercial property market over the coming years.
While the short-term outlook has been dampened by global geopolitical tensions, particularly the economic fallout from the Middle East conflict, analysts believe the setback is temporary, with stronger growth expected to emerge as business confidence improves and investment gathers pace.
Economic forecasts indicate that South Africa’s real gross domestic product (GDP) is expected to rise modestly from 1.1% in 2025 to approximately 1.2% in 2026, before strengthening to 1.3% in 2027 and approaching 2% by 2028/29.
The anticipated recovery is expected to be underpinned by moderating inflation, lower borrowing costs and reforms aimed at improving the country’s investment climate.
Property market remains resilient
Although commercial property continues its gradual recovery from previous cyclical lows, momentum slowed during the second quarter of 2026 as economic uncertainty weighed on investor and business sentiment.
Broker confidence dropped sharply from 69% in the first quarter to 39% in the second quarter, reflecting increased operating costs linked to global geopolitical developments and the South African Reserve Bank’s monetary policy response.
Despite this slowdown, property specialists believe the sector remains on a positive long-term trajectory, although recovery is unfolding at different speeds across the various commercial property segments.
Industrial property leads the recovery
Industrial and logistics property continues to outperform every other commercial property class.
Although market activity moderated slightly during the second quarter, demand remains robust as businesses continue investing in warehousing, logistics infrastructure and supply-chain optimisation.
Johannesburg, Cape Town and Nelson Mandela Bay continue to dominate industrial development, supported by growing demand for distribution facilities and modern logistics hubs.
With e-commerce expansion and regional trade expected to accelerate over the coming years, industrial property remains widely regarded as the strongest-performing investment category.
Retail sector continues to improve
South Africa’s retail property market is also showing encouraging signs of stabilisation as easing inflation and lower interest rates gradually improve household spending power.
Cape Town and Nelson Mandela Bay continue to lead retail market performance, while Johannesburg has experienced a notable rebound after several years of subdued activity.
Industry analysts believe further improvements in consumer confidence and disposable income could strengthen retail property demand as the broader economy gains momentum.
Office market still faces challenges
The office sector remains the weakest performer within the commercial property market.
Persistent vacancies, slower corporate expansion and the continued adoption of hybrid working models continue to suppress demand for traditional office space.
However, Johannesburg is increasingly demonstrating how older office buildings can be repositioned to meet changing market needs.
Approximately 43% of office property transactions in the city are now linked to conversions into residential or mixed-use developments, highlighting a growing trend toward adaptive reuse rather than new office construction.
Property experts believe these redevelopment strategies will play an increasingly important role in revitalising underutilised commercial buildings across South Africa’s major metropolitan areas.
Cautious optimism for investors
Despite current economic pressures, analysts maintain that the medium-term outlook remains positive.
Lower inflation, expected interest rate relief and improving business confidence are anticipated to stimulate investment activity, employment growth and stronger demand across key sectors of the property market.
Industrial assets are expected to remain the strongest performers, while retail property is likely to continue its gradual recovery as consumer conditions improve.
Meanwhile, opportunities within the office sector are increasingly expected to emerge through refurbishment projects, mixed-use developments and the conversion of outdated office buildings into alternative uses.
As South Africa works toward stronger economic growth over the next several years, the commercial property sector appears well positioned to benefit from improving fundamentals—provided investors remain selective and responsive to evolving market dynamics.
