Less people are renting residential areas – here’s why

More people have started to move out of their residential rental properties due to economic pressures and evolving consumer behaviour.

The TPN’s Residential Vacancy Survey Report for the second quarter of 2024 has revealed that residential vacancies across all nine provinces in South Africa have increased from 4.42% in the first quarter to 6.72%.

The most hit provinces in the country are KwaZulu-Natal and the Eastern Cape with high increases, while Gauteng and the Western Cape reported fewer vacancies.

Rental vacancies increase

Industry Principal at MRI Software and Head of Marketing at TPN, Waldo Marcus says rental vacancies have been increasing since 2018 due to the growing supply of rental properties which continued to grow until 2020.

“Although persistently high interest rates have bolstered the rental market, supply has started to decline as a result of decreasing consumer and business confidence.”

He adds that the first half of 2024 saw the lowest average annual national vacancy rate since 2016, as it stood at 5.57% (first half of 2024), which is a reduction of 17.21% compared to the previous year.

Rental vacancies increase not uncommon

Marcus says it is not uncommon that there has been an increase in vacancy rates between the first and second quarters of the year. The results reflect properties under shorter-term leases occupied during the end of the festive season.

“The results also show a take-up in student accommodation in the first quarter to temporarily boost occupancy rates in the lower rental value bands.”

Some students have started to vacate their rental properties earlier than they should due to financial or academic challenges, leaving units empty.

“Higher rental escalations earlier in the year also negatively impacted occupancy rates, particularly in the lower rental value bands.”

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Supply and demand

Despite vacancy rates increasing, the TPN Market Strength Index shows there is still demand for rental properties, as supply and demand in the market increased to 60.36 points in the second quarter of 2024, from 59.66 points.

“An improvement in the quarterly index is primarily driven by a decrease in the overall supply rating, which fell from 57.54 to 54.51 points between the first and second quarters.”

Vacancies in the lowest value band (R3 000 or less rental per month) increased to 10.97% in the second quarter from 4.51% in the first quarter. The vacancy increase can be attributed to reduced student occupancy, the effects of unemployment and workforce migration.

Marcus says supply in this band is expected to decrease further as rent escalations push properties into a higher rental value category.

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Demand remains strong

All band ranges have experienced an increase in vacancy rates, with the possible reasons being sensitivity to economic and employment shifts. The R3 000 to R4 500 range expressed an increase from 6.11% to 7.75%.

The R4 500 to R7 000 band recorded an increase from 4.92% to 6.1%, Marcus says this is despite an improvement in demand and reduced supply.

“The R7 000 to R12 000 band saw vacancies increase from 4.31% to 5.51% with both demand and supply declining. Nonetheless, demand remains strong, with a vacancy rate still below the national average.”

When it comes to the luxury rental market, which ranges from R12 000 to R25 000, there was the lowest vacancy rate for the consecutive third quarter. For this quarter, there was a slight increase from 3.57% to 4.52%.

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A sharp rise in KZN and Eastern Cape

He adds that there has been a sharp rise in vacancy rates in Eastern Cape (up from 9.4% to 12.94%) and KwaZulu-Natal (up from 11.2% to 17.61%). This can be attributed to the increased supply and decreased demand.

“Gauteng saw a smaller increase (4.3% to 7.99%) with a stable rental market strength index. Demand for rental properties in Gauteng has outstripped supply for two consecutive quarters, indicating some positive momentum.”

The Western Cape recorded the lowest increase from 1.51% to 2.33%, which Marcus views as a marginal improvement in the rental market strength index and a reduction in both the aggregated supply rating and demand.

What the future might look like

He predicts that the first interest rate cuts and the improved consumer confidence could result in increased purchasing activity.

“This shift could see an increase in rental property supply due to more investments in the market, and a potential decline in rental demand as more consumers shift from renting to buying. Both scenarios will influence residential vacancy rates in the long term. In the short to medium term, well-managed rental properties are expected to remain occupied and in demand.”

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