PROPERTY NEWS - Property investors will be required to shift their focus to existing, adaptable assets and manage tenant risk to secure the value of their property portfolios in the year ahead. 

Both the residential and commercial property markets will be defined by deepening supply constraints, rising compliance pressures, and significant market differentiation driven by municipal governance.

Rental escalations and property market dynamics

A persistent shortage of residential rental stock is the primary driver of predicted rental price growth, while commercial property, particularly office space, continues to face headwinds, but has seen vacancy improvements due to limited new supply coming online.

TPN predicts residential rental escalations will hover between 4,5% and 5,5% for 2026. This upward trend is supported by provinces like Gauteng, which is expected to see continued positive growth in key residential nodes.

The commercial sector, particularly office space, will continue to face downward rental growth, with escalations expected to drop to approximately 3.0%. However, specific asset types, particularly in storage, industrial hubs and convenience retail, are showing optimism.

While residential rental stock shortages in the Western Cape are expected to ease, the question of affordability remains paramount and rental growth is expected to slow. The fourth quarter of each year typically sees a spike in shorter-term rentals in the province, fuelled by local and international tourism.

Gauteng, on the other hand, is expected to continue its upward trend in rental escalations, partly mitigated by the growing trend of commercial-to-residential conversions. 

Rental escalations in the Eastern Cape are expected to remain flat while KwaZulu-Natal is expected to continue on an upward trajectory, but at a slower pace. Rental growth is driven by high demand secure estates along the coastline.

These are the key trends likely to shape the property market in 2026: 

1. A shortage of rental accommodation reflects high construction costs

The lack of available rental supply, particularly in the residential market, will continue to push prices up. The core issue is the prohibitive cost and complexity of new construction. High construction costs, coupled with the liquidation and business rescue of numerous construction companies, mean new stock will enter the market at a significantly higher price point, limiting solid returns on investment (ROI).

The combined pressures of high construction costs and a shortage of skilled construction labour will limit the scale of new private developments. The commercial property oversupply in Gauteng - particularly in the office space - is being addressed creatively through commercial-to-residential conversions (retrofitting). 

This strategy is more cost-effective and requires smaller, more adaptable construction methods as opposed to expensive fit-out allowances and net new building infrastructure and approvals.

2. Infrastructure investment and reactive regulation

The government's emphasis on national infrastructure projects will limit private sector growth, while wider economic stagnation may lead to quick, reactive regulation.

South Africa’s budget prioritises infrastructure development and refurbishment, which diverts resources like construction capacity and tax revenue needed from private development.

Private developers will be required to invest heavily in bulk infrastructure. This additional cost will act as a major constraint on returns for new projects, which will, in turn, be passed on to the consumer as higher rentals to achieve a return on investment.

Small interest rate reductions - predicted to be two 25 basis point cuts in 2026 - are not expected to stimulate property purchasing as predictably as in the past, due to household uncertainty and expenditure backlogs.

Regulations are expected to be more reactive and rapidly pushed through to compensate for failures in economic growth. This includes attempts to regulate high-return sectors such as short-term rentals and building plan red-tape, which create additional compliance pressures on both residential and commercial landlords. Additional oversight, such as Competition Commission approval for the sale of larger commercial assets, is likely to add process and compliance pressure while slowing free-market transactions, freeing up capital to drive new developments.

3. Municipal elections and value recovery

The 2026 municipal elections will be a pivotal property success factor, predominantly focused on municipal finances and service delivery, creating a flight of capital toward functionality. Regardless of the political outcome, winning parties will likely have to implement additional rates and tariffs to improve municipal liquidity and deliver basic services.

Developers, landlords, and investors will increasingly look for areas with demonstrable good governance and functioning infrastructure. This pursuit of stability will drive and inform new investment decisions.

Areas that demonstrate a visible improvement in service delivery, including safety and security, could see a positive uptick in property values and sustainable property price recovery, as investors pursue value-for-money investments over expensive new builds to bolster affordable rentals.

4. Tenant risk and property valuations

The value of a property portfolio will increasingly be influenced by the tenant's risk profile, requiring more sophisticated risk management. A rental property’s true value is derived from the income stream provided by the tenant, as probable capital growth could easily be affected by instability and the reality of informal settlements, which are becoming more prevalent as inequality shows up in more areas. 

High-risk tenants will negatively impact property valuations, while tenants in good standing (those who consistently pay the full rental amount owed on time) should provide robust investment benefits. The increase in business rescues - despite a downward trend in liquidations - highlights this risk.

The risk of unreliable tenants is particularly high in commercial properties where the value is banked on a single, large retailer. The future lies in diversified, multi-tenant portfolios to mitigate risk.

Investor advice for 2026

Property investors should adopt a strategic, risk-mitigating approach focused on adaptation and resilience. The best value proposition lies in existing structures, with the intention of enhancing or renovating them. This mitigates the risk and high cost of new construction. Investors should gear as much as possible for new developments to ensure free cashflow for unforeseen liquidity demands.

To address the lack of municipal service delivery, landlords must factor in enhancements such as solar panels or inverters, water tanks, and sophisticated security measures to make their properties more attractive to tenants. These features, once secondary, are now essential for both residential and commercial stock.

Commercial investment should focus on smaller, convenience-based retail centres and small industrial parks closer to suburban areas, guided by online retail and distribution logistics.

Given the direct impact of tenant risk on property valuation, rigorous tenant screening, continuous monitoring and proactive arrears management are non-negotiable for preserving portfolio value.

Conclusion

The 2026 property market will be less about aggressive expansion and more about strategic resilience and adaptation. With high construction costs restricting new supply and reactive regulation adding compliance pressure, successful investors will pivot their focus from greenfield developments to existing, adaptable assets. 

The flight to quality areas, driven by effective and predictable municipal governance and service delivery, means property valuation is now inextricably linked to municipal and provincial governance and best practices.

Ultimately, securing portfolio value in 2026 demands a dual focus: proactively managing tenant risk to maintain stable and consistent income streams, and investing in property enhancements (such as solar and water solutions) to shield assets and tenants from broader infrastructure failures. 

The investor who can successfully navigate the constraints of supply and the pressures of governance are likely to see sustainable returns in the year ahead.

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