Mismanagement costs Johannesburg billions as Cape Town's property market surges ahead

Johannesburg’s commercial property market is now worth at least R200.9 billion less than Cape Town’s, a gap that a new analysis by Gmaven attributes not to geography or global finance, but to how each city is run.

Office space in Cape Town commands roughly twice the price of comparable properties in Johannesburg, despite both cities holding commercial property portfolios valued at approximately $22 billion. That pricing gap translates to a difference of at least $12 billion in asset values. Gmaven reached that figure after analyzing more than 25,700 properties and more than 1,500 high-value transactions recorded since 2020.

The two cities share a currency, a central bank, the same sovereign risk premium, the same tax system, and even the same listed landlords. That shared foundation makes the divergence unusually legible. “Their asset-value divergence offers an unusually revealing comparison of how municipal performance may influence market prices or economic performance within one economy,” said Gmaven Chief Executive Officer Will Harris.

For ordinary residents and workers, the consequences are concrete. Cape Town is constructing a new super-yacht marina, an office park housing Amazon.com Inc.’s Africa headquarters, and Marriott International’s most luxurious continental hotel. Job creation in the coastal city outpaced other major urban centers last year, drawing internal migrants and pushing property values upward. The city has become a destination for capital and skilled workers alike.

Johannesburg tells a different story. South Africa’s economic hub is contending with strained municipal finances, deteriorating service delivery, stalled infrastructure projects, and corruption scandals. Businesses and professionals are relocating to better-governed cities, hollowing out demand for office space and leaving landlords unable to sustain rents or attract tenants.

The numbers are stark. A major local bank recently paid less per square foot for prime office space in Johannesburg’s Sandton business district than suburban homeowners would pay builders for new residential construction. In a functioning market, that comparison would be impossible.

Gmaven’s research found that Cape Town is not an overvalued outlier. Measured against international benchmark markets, its commercial property prices remain competitive. Johannesburg, by contrast, has become the anomaly. “Landlords cannot conjure up tenants so owners have watched, largely helplessly, as value drained away,” the research noted.

South Africa’s broader economic stagnation and the shift toward hybrid work have created a nationwide oversupply of aging office buildings. Demand for modern, high-quality space remains steady, but older properties are increasingly converting to residential use, where returns now exceed what corporate tenants will pay. In Johannesburg, that structural pressure compounds the governance failures already driving the exodus.

Meanwhile, major institutional investors have been adjusting their exposure. Growthpoint Properties, South Africa’s largest listed real estate investment trust, has been rebalancing its portfolio away from Johannesburg’s province toward coastal markets including Cape Town and Durban since at least 2022. Hyprop Investments is pursuing a similar strategy, directing more capital to the Western Cape and Eastern Europe.

Harris frames the situation as a test case with continental implications. With Africa projected to account for roughly a quarter of the world’s population by 2050, the governance gap between these two cities amounts to what he calls “a live experiment” in how municipal performance shapes investment flows across the continent.

Local government elections scheduled for November 4 may represent a turning point. If the winning party moves quickly to restore service delivery, address corruption, and rebuild investor confidence, Harris suggested the recovery could serve as a model well beyond Johannesburg’s borders. “If Johannesburg does achieve a turnaround, that turnaround is almost a case study for what is possible throughout all other cities and towns in South Africa and indeed other countries across Africa.”

The full analysis is available at https://www.moneyweb.co.za/news/south-africa/governance-gap-leaves-johannesburg-r200-9bn-behind-cape-town/. Whether November’s election produces the political will to close that gap, or whether the exodus continues, is the question residents, workers, and service users across Johannesburg will be watching most closely.