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- Tenants are looking for reliable sources of electricity and accommodation in areas where service provision is working, according to a property strategist.
- At the same time, the rental market shows continued recovery and rental growth accelerated for a sixth straight quarter.
- The average national rent rose 4.2% from Q1 2022 to Q1 2023, the strongest year-on-year figure since Q4 2017.
- For more financial news, go to the News24 Business front page.
Tenants are increasingly desperate to stay in areas that "work" - whether regions, municipalities, or even estates - where infrastructure is not cracking and where services are functional, says John Loos, property sector strategist at FNB.
"The search is on for reliable sources of electricity. This will become more of a plus point in the rental market as more people work from home.
"Tenants are not just looking for 'houses to sleep in', but accommodation which offers facilities and amenities," says Loos. "As densification continues, the importance of shared recreational facilities will increase."
Makhosini Ndlovu, head of product at FNB Commercial Property Finance, adds that landlords providing alternative energy seem to be doing well compared to others.
"I think it is an exciting time for the residential rental market. As interest rates increased, more people opted to rent rather than buy. In the recent past, this has started to reflect in higher occupancy rates and vacancy rates going down," says Ndlovu.
"But one has to qualify that in the rental stock market, there are pockets doing well and pockets not doing well."
For the past two-and-a-half to three years, rental escalations were next to zero.
"We are now starting to see rental escalations in all provinces - which means demand is increasing," says Ndlovu.
The latest Payprop Rental Index for the first quarter of 2023 reflects continued rental recovery. Rental growth accelerated for a sixth straight quarter.
The average national rent rose 4.2% from Q1 2022 to Q1 2023, the strongest year-on-year (YoY) figure since Q4 2017. In cash terms, this was an increase of R336 to R8 294.
"The rental market finally returned to pre-pandemic levels of growth in the final quarter of last year, and that positive trend has continued in Q1 2023. Rental growth of 3.9%, 4.6%, and 4% was recorded in January, February and March, respectively," says Johette Smuts, head of data analytics at Payprop.
Gauteng showed the slowest average rental growth at 3.1%, while the Western Cape still has the highest average rent in South Africa at R9 872, up from R9 737 last quarter. Year on year, rents in the province grew by an above-average 5%. KwaZulu-Natal also had above-average 5% year-on-year rental growth in the first quarter.
Smuts highlights tenant affordability as one of the biggest challenges for the residential rental sector this year. The percentage of tenants in arrears rose slightly from 18.1% in the fourth quarter of 2022 to 18.3% in the first quarter of this year.
According to Ndlovu, they see a lot of vacancies, especially at the lower end of the rental market - R3 000 a month and below. This is because tenants in this bracket are usually hit harder by the impact of economic factors and unemployment.
