Tenants are increasingly looking for reliable sources of electricity and accommodation in areas where service provision is reliable, according to property strategist John Loos. This trend comes as the rental market continues to improve, with rental growth accelerating for the sixth consecutive quarter.
The average national rent increased by 4.2% from Q1 2022 to Q1 2023, the largest year-on-year increase since Q4 2017. Tenants are looking for more than just “houses to sleep in,” but also accommodations with facilities and amenities, especially as remote work becomes more common. Because of the ongoing densification process, shared recreational facilities are becoming increasingly important.
According to Makhosini Ndlovu, head of product at FNB Commercial Property Finance, landlords who provide alternative energy solutions appear to perform better than others. The current environment is exciting for the residential rental market, as rising interest rates have prompted more people to rent rather than buy. As a result, higher occupancy rates and lower vacancy rates have been observed.
Rental escalations had been minimal in recent years, but there is now a noticeable increase in rental escalations across all provinces, indicating rising demand. The first quarter of 2023 saw a continuation of the rental recovery, with rental growth accelerating for the sixth consecutive quarter. The national average rent increased by 4.2% from Q1 2022 to Q1 2023, amounting to an R336 increase of R8,294.
According to Johette Smuts, Payprop’s head of data analytics, the rental market has finally returned to pre-pandemic growth levels, which have continued into Q1 2023. Notably, rental growth rates of 3.9%, 4.6%, and 4% were recorded in January, February, and March, respectively.
Gauteng had the slowest average rental growth among the provinces, at 3.1%. The Western Cape, on the other hand, has the highest average rent in South Africa, at R9,872, up from R9,737 in the previous quarter. In the first quarter, the province also experienced above-average 5% year-on-year rental growth. Similarly, during the same period, KwaZulu-Natal experienced above-average 5% year-on-year rental growth.
This year, tenant affordability emerges as a major challenge for the residential rental sector, with the percentage of tenants in arrears rising slightly from 18.1% in Q4 2022 to 18.3% in Q1 2023. According to Ndlovu, there are a significant number of vacancies, particularly at the lower end of the rental market (R3,000 per month and below). Tenants in this category are more susceptible to the effects of economic factors and unemployment.
In summary, tenants’ growing preference for areas with functional infrastructure and dependable services is driving the rental market’s recovery. Rental growth has been consistent, with national average rents rising significantly. Landlords who provide alternative energy solutions seem to fare better. However, tenant affordability and vacancy issues persist, particularly in the lower-end rental market segment.