Commercial real estate sector adapts to drive tenant payment recovery in first half of 2025

Despite economic headwinds, South Africa’s commercial real estate sector showed a slight rental collection improvement in the first half of 2025. The sector has been proactively adapting its business models and asset usage, which has contributed to measurable improvements in tenant payment behaviour and overall sector performance, according to TPN Credit Bureau’s latest Commercial Rental Monitor for the first half of 2025.

The monitor reveals that landlords and investors are reshaping their strategies in response to persistent economic pressures and shifting tenant expectations.

Despite slow economic momentum – gross domestic product grew by just 0.1% in the first quarter before edging up to 0.8% in the second – the commercial property market has shown a capacity to stabilise and recover. Improved consumer and government spending, supported by easing interest rates and favourable inflation figures, has created pockets of relief in the retail and small business environment.

Waldo Marcus, director at TPN Credit Bureau, says the commercial real estate sector’s ability to adapt is proving critical to its resilience. “Landlords are reconfiguring space, embracing new tenant categories and diversifying asset usage. These changes are directly supporting stronger tenant performance. By the end of the second quarter, 76.8% of commercial tenants were in good standing – the highest level recorded since early 2020,” he reveals.

TPN’s payment data demonstrates this steady recovery. Although just over half of tenants (57.6%) paid their rent on time, the share of tenants making no payment fell to 7.32% nationally, and both late and partial payments showed signs of stabilisation. Marcus say this reflects a combination of improved business confidence in certain segments and targeted landlord interventions aimed at reducing tenant risk.

The monitor reveals that not all segments are performing equally. Storage continues to outperform all other commercial categories, with 82.7% of tenants in good standing, reflecting sustained demand for conveniently located, smaller-format storage facilities near residential and suburban nodes. Industrial property also remains robust, with developers increasingly prioritising logistics, infrastructure access and tech-enabled operations.

In contrast, the office sector continues to experience the weakest payment performance, even as more organisations encourage employees back to the office.

“Retail property owners have adjusted their approaches, shifting layouts to accommodate online fulfilment, collection zones and consumer-focused digital experiences. The pandemic permanently altered how retail space is planned,” says Marcus, adding that “landlords who embrace hybrid retail models are experiencing improved tenant sustainability.”

Across rental value bands, the performance gap remains pronounced. Tenants paying less than R10 000 per month continue to record the weakest payment outcomes, with an overall good standing of just 73.22%, compared to more than 80% among larger tenants paying above R50 000 per month. TPN attributes this disparity to the stronger financial resilience of larger organisations and the ongoing pressure faced by small businesses and shared-space occupiers.

Regionally, the Western Cape continues to lead the country in both rental escalation and tenant good standing, reaching 85.2% in the second quarter. Gauteng, while showing slight improvement, remains below the national average, with rental growth slowing to just over 3% – the lowest in the country. KwaZulu-Natal and the Eastern Cape recorded mixed results, with modest fluctuations in payment behaviour and rental escalations.

Rental escalations themselves are trending downward nationwide, easing from 4.7% in late 2024 to 3.61% by the second quarter of 2025. This is partly due to landlords applying more cautious escalation strategies as they navigate rising development costs, consumer caution and the still-fragile payment performance among smaller tenants.

Marcus says the sector’s recovery is being powered not by economic tailwinds but by strategic reinvention. “The commercial real estate market is proactively reshaping itself to align with new economic realities. This flexibility is translating into improved returns, lower vacancies and reduced tenant risk.”

Looking ahead, the outlook for the commercial real estate sector remains cautiously optimistic. The monitor notes that the sector will need to maintain – and in some cases, accelerate – its recent innovations to ensure continued progress.

“The growing importance of storage, digital-enabled industrial facilities, hybrid retail models and flexible office formats suggests a structural shift in how commercial property will be developed and occupied in the years ahead. The sector’s long-term success depends on ongoing adaptation.

“This is no longer about waiting for the economy to recover. It’s about reshaping assets and strategies to meet the demands of a changed world,” concludes Marcus.

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