2025: A pivotal year for South Africa’s office real estate dynamics

Source: Supplied. Tandi Jacobs, operations manager, Internal Developers (ID).

In the year ahead, the property solutions leader expects more office real estate deals to flow, increased office space take-up and rental growth driven by solidified hybrid work policies, an evolution in tenant-controlled office designs, and even the re-emergence of new development in some locations.

Entering 2025 with the enabling tailwinds of more positive sentiment born out of the new Government of National Unity, the first effects of a lowering interest rate cycle, and early signs of gradual economic improvement are all significant drivers of office real estate.

In addition, a key factor for the office sector is the increased clarity about the changing nature of work, a dynamic to which many businesses have now found ways to adapt and settle into new operational models. These factors are helping to support effective corporate real estate strategies, confident decision making and enhancing the attractiveness of real estate investments despite ongoing challenges like slow GDP growth.

“The year ahead promises an exciting phase for the office real estate sector, marked by innovation, flexibility and strategic foresight,” says Ken Gerber chief operating officer of Cushman & Wakefield | Broll.

Real estate deal flow set to rise

Cushman & Wakefield | Broll’s capital markets division foresees 2025 as a pivotal year for the real estate sector, with strategic property portfolio rebalancing taking centre stage as key players seek to exit non-core assets, recycle capital to strengthen balance sheets, and pursue core strategies.

Thabo Mofokeng, Cushman & Wakefield | Broll’s dealmaker in its capital markets division, explains that this shift is driven by stretched loan-to-value ratios (LTVs) of listed and unlisted property funds, still relatively high interest rates, and compressed EBITDA margins.

“Despite the real possibility of further interest rate cuts, these factors are prompting a firm focus on, and even re-evaluation of, investment strategies, leading to a clean-out of non-strategic real estate assets from portfolios.

"This trend is expected to spur opportunistic bargain-hunting from buyers with strong liquidity profiles. As interest rates potentially decrease, the appetite for deal flow is set to rise, which is a long-awaited and exciting development,” notes Mofokeng.

However, the discrepancy in buyer and seller expectations is a potential hurdle. “Vendors seeking premiums above book value may dampen buyer interest, particularly among those aiming to unlock value from investments,” explains Mofokeng.

To navigate this, it's important to identify vendors with robust liquidity, equity, and balance sheets, capable of negotiating favourable pricing. "It's about seeing what others can't, playing in spaces that are not obvious to the rest of the crowd, and exploring opportunities that others might overlook.”

Evolution and rejuvenation of offices

Cushman & Wakefield | Broll's Transaction Services Division anticipates a significant change in office market dynamics for 2025, driven by solidified hybrid work models. Calvin Crick, managing director of the division, reports stable office-use patterns will be a defining trend for the coming year. “The rejuvenation of the office market and the evolution of office environments are exciting prospects.”

Crick explains when it comes to workspace, companies are leaving the uncertainty of recent years behind them and enjoying more clarity on their needs. “Firmer hybrid working policies are likely to stabilise office occupancy, with the benefit of a clearer, more consistent demand profile enabling strategic office-space management.”

Cementing this stability is the fact that many organisations have recognised that in-person collaboration significantly enhances culture and execution speed, prompting a re-evaluation of workspace strategies and influencing how companies occupy and utilise office space.

Employee office occupancy rates have increased but are still lower than they were five years ago. However, the need to compete with the flexible nature of the work-from-home model presents challenges in retaining talent.

“To address this, companies must create enticing office spaces and align them with organisational needs, ensuring roles that require in-office presence is well supported,” notes Crick. “

"Adopting a well-defined hybrid strategy and matching it with the appropriate real estate and workplace solutions is crucial for overall operational efficiency.”

He adds that this shift necessitates a strategic re-evaluation of workspace utilisation, promising a rejuvenation of office environments.

Transformative office experiences

The transformation of the office will define 2025, according to Cushman & Wakefield | Broll's Workplace Solutions delivered by Internal Developers (ID). Tandi Jacobs, general manager of this turnkey design & build firm, believes that flexible workspaces, health-oriented designs and increased capacity for occupants to customise their workspaces will shape the commercial real estate landscape.

“As hybrid work models become the norm, businesses are prioritising the flexibility of their workspaces,” notes Jacobs. “The result is a new trend of tenant control and customisation that echoes the growing importance of the tenant experience in commercial real estate. This is resulting in the rise of more customisable spaces being offered by landlords, which allow tenants to personalise office layouts, technology systems and amenities.”

This is also fuelling a demand for additional, on-demand amenities at offices, such as gyms, cafés, and conference centres. “We see this driving a need for more flexible, mixed-use developments,” says Jacobs.

The shift toward flexible workspaces, emphasising collaboration over individual workstations, helps to optimise office sizes, enhance the employee experience and support business goals.

Jacobs explains this means putting clients first. ID creates comprehensive workplace strategies tailored to each client's unique needs. “Open-plan layouts, modular furniture, and multi-use spaces are enabling companies to adapt to evolving work styles. Our designs offer flexible spaces that easily switch between different work styles. They work well in any environment and include areas for individual work, teamwork, and quiet tasks.”

This flexibility extends well beyond a single-location core office to a more dispersed footprint of smaller offices across cities, bringing offices closer to where talent lives and reducing commutes. It also includes co-working spaces and on-demand office solutions, which cater to teams requiring part-time or project-specific additional physical office access.

Health and wellness-oriented designs, such as those that incorporate biophilic elements and enhanced air quality systems, are a growing focus, according to Jacobs, as the connection between employee wellbeing and business performance is increasingly recognised.

“Never has there been a more exciting time for innovation and flexibility in workspace design & build. Today, more than ever, the experience of the workplace is being acknowledged as a key component of maintaining collaboration, company culture, and employee engagement. It is increasingly being considered part and parcel of organisation strategy by those seeking a competitive edge in the quest to secure the best talent and deliver outperformance,” says Jacobs.

As the differences between organisation-specific workspaces become more pronounced, technology is playing an exciting role in visualising workspaces. “A flexible approach to design, coupled with a personal touch and advanced visualisation tools like 3D renders, allows clients to envision their new spaces before construction begins.”

From a tenants’ market towards a landlords’ market

“We expect that demand for commercial office space will rise in 2025,” says Angus Murray, of Cushman & Wakefield | Broll Transaction Services. “This will lead to reduced office vacancies, the possibility of real rental growth, and a shift towards market equilibrium and away from the tenants’ market that has dominated the office property sector market in recent years. It could even potentially trigger new office developments in specific areas where demand exceeds supply.”

This shift means office tenants should expect increased real estate costs as negotiating favourable rental terms becomes more challenging when less office space is available. Higher demand also equates to increased competition, so prospective tenants will have to move faster to secure deals than they have in recent years.

“Operating in a more positive market environment after years of stagnation is an exciting prospect. We recognise the challenges of a competitive negotiation landscape and fewer opportunities for achieving cost-of-occupancy savings. To address this, it is imperative to have early engagements with landlords and strategic planning ahead of lease expiries,” advises Murray.

He adds that while it may be early to see definitive evidence of the shift in office demand-supply dynamics, numerous signs suggest its emergence. Looking at sector fundamentals, the return to office and evolving workplace designs that support the office experience are factors driving office demand.

At an economic level, South Africa's improved political stability, suspension of load shedding, and lower interest rates are providing a supportive environment and the clarity needed for businesses to advance real estate strategies.

“All this adds up to the property cycle turning in favour of offices,” says Murray. “Staying ahead of the curve takes forward planning, detailed due diligence, extensive market searches, and early landlord engagements.”