By Siphamandla Mkhwanazi
Views from the top floor
The domestic macroeconomic environment remains challenging in the near term but is expected to become progressively more supportive over the medium term as inflation moderates, borrowing costs decline and structural reforms gradually lift business confidence and investment. Real GDP growth is projected to improve modestly from 1.1% in 2025 to around 1.2% in 2026, before strengthening to 1.3% in 2027 and approaching 2.0% by 2028/29. While the economic fallout from the Middle East conflict has weakened the near-term outlook relative to our pre-war expectations, we continue to view this shock as temporary and largely externally driven. Lower borrowing costs, easing inflation, and ongoing structural reforms are expected to support a gradual recovery in business confidence, investment, and employment over the medium term, providing a firmer foundation for a gradual strengthening in economic activity.
Importantly for commercial property, inflation and interest rates are expected to moderate beyond the current period of volatility, supporting a gradual recovery in domestic demand, private sector credit extension and investment activity. Nevertheless, the investment backdrop remains a key weakness. Fixed investment in both residential and non-residential property remains well below pre-pandemic norms, suggesting that confidence has yet to recover sufficiently to support a broad-based expansion in development activity (Figure 1).
Views from the ground floor: Broker Survey Results 2Q26
The commercial property market continues to recover from its cyclical lows, but momentum weakened in 2Q26 as the macroeconomic environment deteriorated. Broker satisfaction with prevailing market conditions fell sharply from 69% in 1Q26 to 39% in 2Q26, with the decline broad-based across regions, suggesting that weakness was not confined to any single market. The deterioration mirrors developments in other business sentiment indicators and reflects the impact of higher operating costs associated with the Middle East conflict, as well as the South African Reserve Bank's (SARB's) subsequent interest rate response (Figure 2).
Despite the setback, survey results suggest that the market remains on a gradual recovery path, albeit one that is becoming increasingly uneven across sectors and regions. Performance, however, remains highly uneven across asset classes. Industrial property continues to outperform, supported by logistics demand and supply-chain restructuring, while retail has shown signs of gradual stabilisation. In contrast, the office sector remains constrained by elevated vacancies, limited tenant expansion and ongoing structural adjustments associated with hybrid working models. As a result, the recovery remains intact but fragile, with higher funding costs and softer business confidence likely to keep improvement gradual and sector specific.
Views from the ground floor: Sales activity
Office
Office sales activity remains the weakest of the major commercial property segments and has generally trended sideways over the last twelve months. Activity eased from 4.84 in 1Q26 to 4.56 in 2Q26, albeit still above the long-term average of 4.16 since 2019 (inception of the survey) (Figure 3). The latest decline suggests that higher borrowing costs, weaker business confidence and ongoing structural adjustments associated with hybrid working continue to weigh on occupier and investor demand. Demand remains highly selective, focused primarily on modern, well-located buildings, while broad-based expansion remains limited.
The regional performance highlights a more pronounced coastal-inland divergence. Cape Town remains the strongest office market, with an activity rating of 6.22 in 2Q26, followed by Nelson Mandela Bay at 5.80. By contrast, inland markets remain considerably weaker, with Johannesburg at 4.50, Tshwane at 3.93 and eThekwini at 3.77. Cape Town and Nelson Mandela Bay therefore continue to stand out as relative bright spots, while Johannesburg and Tshwane remain constrained by weak office fundamentals and elevated vacancy levels.
In Johannesburg specifically, transaction activity increasingly appears to be driven by the repurposing of obsolete office stock. Brokers report that conversions to residential and mixed-use developments have become the dominant source of demand, accounting for approximately 43% of office transaction activity in the city (Figure 4). While these conversions are helping to absorb excess supply and improve utilisation of ageing assets, they also underscore the extent to which parts of the traditional office market remain structurally oversupplied. As a result, activity in Johannesburg's office market is increasingly being driven by asset repositioning rather than conventional occupier expansion. Consequently, office is likely to remain the slowest recovering commercial property segment, with investment activity concentrated in premium assets and conversion opportunities rather than broad-based development.
Industrial and warehouse space
Industrial and warehousing remained the strongest segment of the commercial property market in 2Q26, although activity moderated from 6.21 in 1Q26 to 5.58 in 2Q26. This pullback should be viewed as a cyclical cooling in response to higher operating costs and tighter funding conditions rather than a deterioration in underlying sector fundamentals (Figure 5).
Regionally, Johannesburg, Cape Town and Nelson Mandela Bay remain the key industrial and warehousing markets. Johannesburg recorded an industrial activity rating of 5.93 in 2Q26, comfortably above the national office rating and highlighting the extent to which Gauteng's property weakness is concentrated in the office sector rather than logistics-related assets. Cape Town and Nelson Mandela Bay also remained resilient, with activity ratings of 6.00 and 5.83 respectively, reflecting sustained demand for logistics and warehousing space in coastal markets.
The relative resilience of these markets suggests that industrial demand continues to be supported by structural factors rather than purely cyclical conditions. Logistics optimisation, warehousing demand and supply-chain restructuring remain important drivers of activity, while infrastructure constraints and rising development costs continue to limit supply growth. These constraints should help limit speculative supply, supporting occupancy levels and rental growth in well-located logistics nodes. As a result, industrial property is likely to remain the primary beneficiary of any eventual recovery in investment spending and broader economic activity. Consequently, industrial property is likely to continue attracting a disproportionate share of development capital and investor interest over the medium term.
Retail
Retail property continues to occupy the middle ground between the strength of industrial property and the ongoing challenges facing the office market. While activity softened from 5.23 in 1Q26 to 4.93 in 2Q26, the sector remains noticeably stronger than it was two years ago and appears to be gradually normalising rather than entering a renewed downturn (Figure 6).
The regional performance highlights a clear coastal advantage. Cape Town and Nelson Mandela Bay remain the strongest retail markets, with activity ratings of 6.71 and 5.83 respectively in 2Q26. These markets have benefitted from stronger economic activity, population inflows and a more synchronised recovery across the broader property market, supporting retailer confidence and transaction volumes.
While Johannesburg remains below the coastal metros, the city has shown a notable improvement from the depressed levels recorded over the past two years. Retail activity has steadily recovered from levels around 3.4 to 3.9 during much of 2024 to 5.19 in 2Q26, suggesting that conditions are gradually improving from a low base. This improvement reflects the rationalisation of weaker centres, more disciplined asset management and a gradual stabilisation in demand. Although activity remains below the levels recorded in Cape Town and Nelson Mandela Bay, the gradual improvement suggests that retail fundamentals are broadening, supported by better-positioned centres and a slow improvement in consumer demand. This should help narrow regional performance gaps over time and support a broader recovery in retail property fundamentals. As consumer conditions gradually improve, investment demand is likely to remain concentrated in dominant regional and convenience centres, while weaker assets continue to face pressure from changing consumer preferences and slower catchment growth.
Conclusion
The 2Q26 survey reinforces our view that the commercial property market is recovering, albeit unevenly and against a challenging macroeconomic backdrop. Industrial property remains the clear market leader, supported by structural demand for logistics and warehousing space. Retail continues to stabilise, with encouraging signs that the recovery is gradually broadening beyond the traditional coastal outperformers. In contrast, the office sector remains engaged in a longer-term adjustment process characterised by elevated vacancies, selective demand and increasing asset conversion activity.
While the Middle East conflict and the resulting tightening in monetary conditions have delayed the pace of recovery, the medium-term outlook remains constructive. As inflation moderates, borrowing costs decline and economic growth gradually strengthens, the conditions for a broader recovery in commercial property demand should improve. For now, however, performance is likely to remain highly differentiated across sectors, regions and asset quality, reinforcing the importance of selective capital allocation and active asset management. Industrial property remains best positioned to benefit from an eventual recovery in investment spending, retail should continue to improve gradually as consumer conditions stabilise, while office opportunities are likely to remain concentrated in refurbishment, repositioning and conversion strategies.
