John Loos
Against this improving economic backdrop, the commercial property market is expected to enter 2026 on a mildly stronger footing than in 2025.
FNB’s broker surveys already indicate stronger sales activity during 2025 compared to the previous year, alongside declining vacancy rates across key commercial property classes.
Notably, the previously elevated national office vacancy rate has begun to decline. This has been partly driven by significant residential and mixed-use repurposing of older office stock. Brokers estimate that approximately 20% of office buildings sold in 2025 were acquired for planned residential or mixed-use conversion.
Oversupply conditions have also been eased by persistently low levels of new commercial development. Non-residential building completions for the 12 months to October 2025 were 29% lower than the same period in 2018, while space plans passed were 28% lower. This post-Covid trend of subdued development activity is expected to continue into 2026.
The office sector has seen the sharpest pullback in new supply, with office building completions down 82.5% and plans passed down 50.5% compared to pre-pandemic levels — reflecting the extent of oversupply in this segment over recent years. The combination of improving demand and constrained new supply bodes well for stronger commercial property returns in 2026, including the potential for capital value growth above inflation, resulting in positive real returns.
Industrial property expected to remain the outperformer
Industrial property is expected to retain its position as the top-performing commercial property class. Structural shifts in warehousing and logistics demand, driven by the continued growth of online retail and supply chain optimisation, remain supportive of this sector.
Office property outlook improving relative to retail
The relative performance outlook between office and retail property is becoming increasingly difficult to predict at a national level. Office space surpluses are gradually diminishing, supported by ongoing conversions of older office buildings into residential and mixed-use developments, particularly in Greater Johannesburg, where vacancy rates remain elevated.
In contrast, major coastal metros such as Cape Town and eThekwini have seen office vacancy rates decline into single-digit levels, supported by growing demand from call centres and business process outsourcing operators.
Retail property, meanwhile, continues to face pressure from a financially constrained consumer, limiting its growth potential. As a result, while office property has underperformed retail and industrial assets in recent years, 2026 may no longer present a clear underperformer between office and retail.
Western Cape expected to be the standout regional performer
Regionally, the Western Cape is once again expected to outperform other provinces across the property market.
The province is entering a phase of relative economic outperformance, supported by its reputation for strong infrastructure delivery, effective governance, and lifestyle appeal. These factors have driven two decades of net inward migration, particularly of skilled professionals and affluent households, strengthening the province’s skills base and supporting its services-driven economy.
This dynamic is expected to continue driving robust demand for both commercial and residential property. In 2025, perceived investor demand exceeded available property supply by a larger margin in Cape Town than in any other major metro, across office, industrial and retail markets, underscoring sustained investor confidence in the region.
Semigration trends spreading beyond Cape Town
Within the Western Cape, the Southern Cape — including areas such as George and Mossel Bay — is expected to outperform, as semigration trends increasingly extend beyond Cape Town and its immediate surrounds. This shift has already supported increased development activity in these regions. Looking ahead, certain Eastern Cape coastal towns may also see a rise in semigration, particularly as affordability pressures intensify in Cape Town and surrounding markets.
Residential building recovery remains muted, but Western Cape leads
Residential building activity is expected to be strongest in the Western Cape relative to market size, reflecting superior property returns and acute housing shortages.
According to Statistics South Africa, Western Cape house price growth has accelerated into high single-digit territory, reaching 8.6% year-on-year, compared to the national average of 5.8%. In contrast, Gauteng and KwaZulu-Natal recorded significantly lower growth of 3.7% and 1.7%, respectively.
These disparities point to where residential development activity is likely to concentrate. While the national residential building response to lower interest rates has remained muted with units passed down 4.46% in the first 10 months of 2025 compared to the same period in 2024 to 2026 is expected to see a stronger supply response in the Western Cape.
Rising operating costs remain a key challenge
Despite improving market fundamentals, property operating cost inflation remains a significant challenge for both landlords and tenants. Public sector-related costs, including municipal rates and utility tariffs, are expected to continue rising faster than general inflation. Electricity tariffs remain a persistent pressure point for the property sector.
John Loos – Senior Property Economist for Commercial Property Finance at FNB. He writes in his personal capacity.
