Property investment activity in South Africa is regaining traction, with improving valuations signalling a shift in sentiment after several subdued years. The latest MSCI South Africa Real Estate Annual Index to December 2025 shows a market stabilising on the back of stronger fundamentals, even as structural shifts in asset allocation continue to reshape portfolios.
Retail property remains the dominant segment, accounting for 61% of total holdings.
However, its share has begun to decline marginally as capital is redirected towards industrial and residential assets. This reallocation reflects a broader recalibration by investors seeking exposure to sectors with stronger income resilience and growth potential, particularly in logistics and warehousing, which have benefited from changes in supply chains and e-commerce demand.
A key development in 2025 has been the return of positive property revaluations, which added R12.7bn to portfolios and reversed the declines recorded between 2020 and 2022. This recovery in capital values points to renewed investor confidence, supported by more stable operating conditions and improved tenant performance. Net additions of R5.9bn further contributed to overall growth, although disposals outpaced acquisitions as investors prioritised core, income-generating assets and reduced exposure to underperforming properties.
Transaction activity highlights a notable divergence in market participation. Real estate investment trusts have continued to reduce their holdings, acting as net sellers, while private investors and owner-occupiers have taken advantage of pricing opportunities to expand their portfolios. Total property sales reached approximately R29bn in 2025, with an additional R13bn recorded in the first quarter of 2026, suggesting sustained liquidity and ongoing portfolio repositioning.
Total returns across all property types held steady at 12%, underpinned by an income return of 8.5% and capital growth of 3.3%. While income remains the primary driver of performance, the return of capital appreciation marks a turning point after several years of limited or negative growth.
Industrial property continues to lead the market in terms of returns, although its growth rate has moderated from the highs seen in the previous year. The sector’s performance has been supported by sustained demand for logistics space, limited supply in key nodes, and relatively low vacancy rates. Even with some easing, it remains the benchmark for consistent returns within the sector.
Retail property, which faced significant pressure in recent years, is showing clearer signs of recovery. Improved capital growth indicates a gradual strengthening in sentiment, supported by more stable consumer activity and better trading densities in key centres. Within this segment, township retail has emerged as a standout performer, delivering returns of 17.8% in 2025 and outperforming other retail categories for a third consecutive year. Suburban retail has remained comparatively steady but continues to lag higher-growth segments.
The office sector has shown modest improvement compared with 2024 but remains constrained by structural challenges, including evolving workplace trends and persistent vacancies in some markets. Its slower recovery relative to retail and industrial underscores ongoing uncertainty around long-term demand for traditional office space.
READ – Foreign Buyers Lift SA Property
Residential property has been the only segment to register weaker performance, reflecting pressures on household affordability and rising borrowing costs. While demand remains present in certain urban nodes, overall returns have softened compared with the previous year.
Geographically, Cape Town continues to attract the strongest levels of investment, supported by expectations of sustained income growth and favourable development conditions. In contrast, Johannesburg has recorded the lowest levels of capital expenditure intensity among major metros, indicating a focus on maintaining existing assets rather than pursuing expansion. This divergence reflects differing economic dynamics and investor perceptions of long-term growth prospects across regions.
Direct property returns have shown a steady recovery alongside the broader economy since 2022, rising from near-zero levels to around 12% over a five-year period. This trend aligns with gradual improvements in economic activity, although growth remains constrained.
Looking ahead, expectations for economic growth in the range of 1.5% to 2% suggest a stable but limited upside for the property sector. While current conditions support continued recovery, external risks, including global geopolitical uncertainty and its potential impact on capital flows and interest rates, are likely to remain key factors shaping investor sentiment through 2026.
READ – South Africa’s Office Market Narrows to 12.6% but Rental Growth Lags Behind