The industrial property market in South Africa remains the strongest among the three major non-residential property sectors, driven by low vacancy rates and robust rental growth. According to Rode’s data for the second quarter of 2025, nominal gross market rentals for 500 m² industrial space nationally increased by 7.5% year-on-year, consistent with the increase observed in the first quarter of the year. These rental levels are approximately 28% higher than the pre-pandemic levels of 2019, a remarkable achievement given the prevailing weak economic conditions. Larger industrial spaces of 1,000 m² grew slightly slower at 6.4% nationally in the same period.
Regionally, Cape Town stands out as the best-performing industrial market due to strong demand and limited supply. Rentals for 500 m² spaces in Cape Town increased by about 14% year-on-year in Q2 2025. Other industrial hubs such as the East Rand also demonstrated solid rental growth. The average vacancy rate for the industrial sector was 3.8% in Q2 2025, almost unchanged from 3.7% a year earlier, and vacancy rates have remained fairly stable just under 4% over the past two years.
Several factors have contributed to this strong industrial market performance:
- Less speculative development in the industrial sector compared to offices, limiting oversupply.
- Rapidly growing online retail sales, increasing demand for larger warehouses.
- Logistic-focused properties exhibit particularly low vacancy rates; for example, some major portfolios recorded zero vacancies in the year ending February 2025.
Large warehouses tend to be bespoke and customized, resulting in higher rents than average market rates. Major property owners like Growthpoint, SA Corporate, and Attacq have shifted their strategic focus toward logistics-focused industrial properties.
Key drivers of demand for industrial property include the manufacturing and retail sectors. Manufacturing typically drives demand for industrial production space, while retail fuels the need for warehouse and distribution facilities. However, manufacturing has shown weak performance so far in 2025, with production declining by 1.7% in the first half of the year and remaining below pre-COVID levels. This has resulted in Real Estate Investment Trusts (REITs) divesting from manufacturing-linked industrial properties and prioritizing logistics-focused assets.
In contrast, the retail sector has provided stronger support. Real retail sales increased by 3.8% year-on-year in the first half of 2025, buoyed by lower interest rates and “two-pot” retirement fund withdrawals that temporarily boosted consumer spending. However, consumer caution persists, slowing sales growth compared to late 2024. Overall retail sales are only about 5% higher than pre-pandemic levels, indicating that the significant growth driver in recent years has been in online retail sales. Online shopping has heightened demand for modern warehouse and distribution space designed for efficient logistics.
Regarding rental growth dynamics, it is important to distinguish between market growth rates (reflecting overall rental changes) and contractual escalation rates (annual rent increases as specified in leases). Contractual escalation rates typically represent an expectation of rental growth during the lease term.
Nominal industrial market rentals grew 7.5% nationwide for 500 m² prime space compared to Q2 2024. When adjusted for building construction inflation, real rentals have improved significantly from a developer’s perspective for the first time in many years, reflecting faster nominal rental increases and a moderation in construction cost inflation.
Rental levels in major industrial conurbations such as Durban and Cape Town have converged in 2025, primarily due to Cape Town’s rapid rental increase of about 14%. Cape Town saw a reduction in vacancy rates in the first half of 2025 to 3.2%, down from 3.5% a year earlier, underscoring its tight market. Other conurbations like Central Witwatersrand and East Rand continue to see rental growth at 4% and 6%, respectively, although vacancies have risen somewhat in these areas, tempering rental growth.
Most conurbations across South Africa had vacancy rates under 5% in the first half of 2025. However, areas like Bloemfontein and Gqeberha have struggled with higher vacancies. Gqeberha’s industrial vacancy risk is heightened by a recent 30% tariff on auto exports—a key local industry—and the closure of a major automotive plant, leading to efforts to revive operations by unions and the government.
From a real rental perspective, after accounting for building construction costs, real rentals have generally declined since the late 2000s because construction inflation outpaced nominal rental growth. However, recent faster nominal rental growth and cooling construction inflation have started to reverse that trend, supporting improved real rental returns.
Pioneer rents—in new, purpose-built industrial buildings reflecting current construction costs and developer return expectations—serve as leading indicators of future market rental levels once supply and demand balance post-economic growth. These pioneer rents are generally higher than current market rents due to these factors.
Operating expenses, excluding tenant utilities, are another key factor in property viability. Rising utility costs faster than inflation could erode tenant affordability and thus rental levels over time.
In conclusion, the industrial property market in South Africa during the second quarter of 2025 shows strong resilience and growth amid a weak economy, driven by sustained rental growth, low vacancy rates, rising online retail demand, a strategic shift to logistics-focused assets by major property owners, and a stable supply environment with minimal speculative overbuilding. The sector is well-positioned for ongoing demand, particularly in logistics and warehousing, despite challenges in manufacturing and localized economic risks.
