South Africa’s recent removal from the FATF Grey List marks a critical milestone in restoring international trust and confidence in the country’s regulatory and financial frameworks. While it remains too early to quantify the full impact on investor behaviour and capital inflow, the past year’s market data points to a nuanced trajectory reflecting a rollercoaster pattern rather than a straightforward rebound.

JLL Africa’s tracking of commercial property transactions above R20 million reveals that 2024 was a record year with R27 billion in volumes – the highest in over a decade. Notably, one-third of these transactions were distressed sales due to liquidations and business rescues, underscoring market distortions amidst optimism.

Pepler Sandri, Senior Director: Capital Markets at JLL Africa says that the first half of 2025 saw a marked slowdown with transaction volumes dropping sharply to about R7 billion.

“This dip suggests that immediate market reactions to regulatory improvements such as the grey-list removal along with macro factors like easing interest rates and reduced load shedding, take time to feed through to deal closures and capital deployments. Encouragingly, the second half of 2025 marked an uptick in activity, particularly in the Western Cape, signalling a delayed but positive market response.”

Signals for realignment and emerging opportunity

Traditionally a cornerstone in South Africa’s property landscape, the office sector is no longer the dominant asset class. Despite a spike to R8.2 billion in transactions in 2024, overall investor appetite remains muted.

“The office property sector consistently generated R7 billion to R9 billion in annual volume between 2016 and 2021. However, volumes declined sharply to R3 billion in 2021 and remained below R4 billion in 2022 and 2023. An anomalous uptick occurred in 2024 due, in most part, to sales that came from Rebosis Property Fund’s business rescue process followed by another downturn in 2025,” Sandri explains. “JLL Africa views the 2024 performance as an artificial bump for the sector.”

Sandri says the real litmus test is whether investment-grade office assets are trading hands – are premium builds with long leases transacting? “It is scarce year-on-year. Between 2022 and 2024 two or three investment-grade offices traded hands. Most investors are not interested in allocating capital into the sector because of its uncertainty and its oversupply, particularly in Gauteng.”

However, recently announced acquisitions including the Portside Towers in Cape Town could be a move away from the reluctance to invest in prime offices, with JLL Africa picking up that leases are being concluded for up to 10-year terms again. More confidence from the tenant/occupier might drive liquidity to the sector’s premium segment. The rest of the sales in B-grade and C-grade space are being driven by user buyers and office-to-residential conversions, but again, says Pepler, R3 billion to R4 billion a year is half of the volume seen during the peak of the commercial property market in 2016. “We do not see this improving at the same trajectory as the retail and industrial segments of the market,” he says.

The retail property market exhibits mixed patterns with regional shopping centres seeing fewer transactions in 2025. Six regional shopping centres transferred in 2024 – two in the Western Cape at single digit yields and four in Gauteng and the Eastern Cape at double-digit yields.

“Geographically, in H1 2025, the Western Cape grabbed 50% of the total volume of transactions which has never happened before. The Western Cape took up 33% of volume in 2024 – which we thought would be a record year and it has kept up its upward trajectory,” notes Pepler. “If we look at the period between 2016 and 2020, it used to hover between 10% to 15% of volume with Gauteng averaging between 65% and 75% of total volume.”

Community and neighbourhood shopping centres are hitting impressive capital values – exceeding R30 000 per m² in some instances.

REITs that have historically been net sellers are now net buyers in the retail segment, signalling renewed confidence with the rise of new peri-urban and township retail developments, pointing to a growing investor interest outside traditional metro hubs.

“There has been a distinct shift in capital allocation towards this sector that we believe is set to remain in place. We predict above R7 billion worth of transactional volumes in SA’s retail space in 2026.”

The industrial property sector, including logistics and factories, has shown resilience and growth, doubling transaction counts year-on-year in 2024. Smaller industrial assets have become increasingly attractive, especially in low-vacancy markets like the Western Cape with large-scale facilities remaining tightly held.

The flight to quality: Reimaging office space from a tenant perspective

JLL Africa says there is a clear tenant-driven shift to return to the office post-pandemic which is catalyzing demand for quality, flexible, and collaborative spaces. As businesses prioritize employee wellness and productivity, the demand grows for A-grade premium office space with modern amenities, flexible layouts, and enhanced security, further fuelling selective leasing activity and refurbishments by landlords.

“Tenants are opting for less space if it means better space,” says Hugh Hardy, Head of Tenant Representation SSA at JLL Africa. “This flight to quality often manifests as ‘musical chairs’ within the market. Established tenants migrate from B-grade to premium offices, leaving vacancies behind.”

The underlying motivation behind this shift is to foster collaboration, knowledge share, and to create a cohesive work culture – elements that have eroded over the past few years due to remote work, adds Kezie Chinje, Associate Director for Tenant Representation at JLL Africa. “Our new lease acquisitions this year reflect companies’ efforts to enhance their employee value propositions and to rebuild a connected workforce,” she adds.

A core challenge faced by JLL Africa’s clients is competing with the comfort and convenience of working from home. This is not only influencing landlord offerings but also driving interior design innovation with the integration of tech, ergonomic interiors, and multi-functional spaces that transform offices into desirable destinations, not just workstations.

“Modern offices feature fewer traditional desk farms, replaced by multiple touchdown points, breakaway zones, and collaborative tech-rich spaces,” says Ryan O’Donovan, leading Tétris & JLL PDS South Africa. “Offices are becoming destinations – places that entice employees back by being flexible, engaging, and thoughtfully designed. This trend promotes downsizing to right-sized spaces customized to business needs, while simultaneously boosting employee enthusiasm ”.

While location remains paramount, with Hardy pointing to precincts like Riverlands and Century City in Cape Town, Oxford Parks in Rosebank and Waterfall City in Midrand – all designed with security, easy transport access, and amenities top of mind, he says there is an opportunity for landlords to reinvest in B- and C-grade office stock to ‘best-in-grade’ through strategic asset enhancement.

“Our outlook suggests a return to basics: success lies in truly understanding occupant demand and creating spaces that fit those needs. By doing so, vacancies should decline sharply. The office market’s future is about quality over quantity; spaces that compete not just on price, but on experience and value,” he says.

While certainty remains, an overall market recalibration is underway with fewer distressed transactions improving pricing and cap rates indicating returning investor confidence. The commercial property sector’s resilience hinges on adapting to tenants’ demands, focusing on quality assets, and capitalising on geographic shifts.

Successful investors and developers will be those that leverage data-driven insights, prioritise safety and convenience, and embrace innovation in formats and design.

South Africa’s removal from the FATF grey list is only one piece of the puzzle but it provides a critical platform upon which momentum can build for more secure, transparent, and attractive commercial real estate investment.