Rental increases above 4% no longer sustainable for most tenants, report finds

South Africa’s commercial-property sector is facing mounting pressure as tenants push back against unsustainable rental increases and rising operating costs.
Source: Supplied. Waldo Marcus, director at TPN Credit Bureau.
Source: Supplied. Waldo Marcus, director at TPN Credit Bureau.

New insights from TPN Credit Bureau’s inaugural 2026 Voice of the Commercial Tenant Report reveal that more than half of tenants cannot absorb annual escalations above 4%, placing lease renewals at growing risk.

Drawing on feedback from 950 respondents across multiple sectors, the report highlights how high rentals, utility costs, municipal billing concerns and property-related issues are reshaping tenant behaviour and challenging traditional landlord strategies in a strained economic environment.

At a time when macro-economic volatility and infrastructure challenges are adding to the financial strain on South African businesses, the report provides a granular analysis of the commercial ecosystem, examining everything from business confidence to technology adoption and lease-renewal intent.

The report reveals that the risk of non-renewal is no longer just a concern for struggling businesses but is a structural reality for the ‘neutral’ majority. While 40% of tenants express satisfaction with their premises, a significant 38% are in a neutral holding pattern.

This cohort represents a renewal risk - tenants who are currently compliant and paying but lack the loyalty or financial headroom to absorb traditional 8% escalations. These tenants are monitoring costs carefully and are structurally positioned to exit at the next renewal if market conditions or landlord flexibility do not improve.

The report highlights that the commercial landscape is being redefined by smaller, more agile organisations. A clear trend toward right-sizing is evident, with nearly half (47%) of all tenants securing spaces between 100m² and 500m².

This is followed by the micro-occupancy segment, where 29% of tenants occupy premises of less than 100m². This move toward efficiency is a direct response to the twin pressures of high rental costs and escalating operating expenses, which together account for nearly half (46%) of all challenges raised by tenants.

These two factors - acute price sensitivity and space contraction - are the defining forces currently reshaping the landlord-tenant relationship and challenging traditional property investment models.

Sectoral sentiment: A fragile retail recovery vs. office resilience

While the global narrative has often focused on the demise of the office, the South African context tells a different story. The office occupier sector is a surprising positive outlier in the report, with 34% of office tenants reporting a satisfaction rating of 4 out of 5 - the highest share across all sectors. Office tenants are also the most confident, with nearly 39% reporting a positive economic outlook.

In contrast, the retail sector remains in a fragile state. Retail tenants report a more negative economic outlook (33%) than the national average. Satisfaction in retail is heavily concentrated in the "neutral" category (over 40%), suggesting that confidence in physical retail is thin.

The report indicates that for retail occupiers, rental increases are increasingly felt alongside rising utilities and flat consumer demand, making them the most sensitive to renewal risk if trading conditions worsen.

Operational hurdles and the infrastructure gap

Beyond the direct cost of rent, the report uncovers significant frustration regarding government, municipal and state dependencies. Challenges linked to electricity supply, poor infrastructure maintenance and municipal service delivery failures account for 30% of reported operational hurdles.

These issues, while often outside the landlord's direct control, are becoming a primary driver of tenant dissatisfaction. Industrial tenants, for instance, reported the highest impact from electricity supply issues (18%), reflecting the critical importance of power for operational continuity. Storage and office tenants, meanwhile, expressed elevated concerns regarding building upkeep and municipal maintenance, suggesting that facility management is becoming a key differentiator in tenant retention.

There is also a clear dependency between effective facility management and perceived utility supply challenges, transferring municipal ownership to landlords if buildings are not maintained in line with the tenant’s expectations.

The renewal risk

One of the report’s most sobering findings is the renewal risk analysis, which suggests that renewal outcomes are no longer driven primarily by lease terms, but by perceived experiential value. The highest-risk group for a landlord is not necessarily the vocal, dissatisfied tenant, but the one who is ‘neutral’ in their satisfaction and facing a probable escalation of 5% or more.

The report notes that even a 15–25% share of higher-risk tenants can materially affect vacancy levels and income stability. Uniform escalation strategies that intend to protect long-term, predictable property asset income are increasingly viewed as high risk in the short and medium term. For tenants, the findings stress that when landlords demonstrate flexibility and responsiveness, tolerance for cost pressure improves.

Growth constraints and the role of technology

When asked to identify the three biggest barriers to business growth, 22% of respondents cited the broader economic climate, including weak demand and subdued consumer spending.

This was followed by utility costs (17%) and regulatory complexity (13%). Interestingly, transport and logistics (4%) and exchange-rate fluctuations (5%) ranked as the least impactful growth barriers for the majority, suggesting that businesses have adapted to these logistical and currency-volatility hurdles but remain strangled by the cost of simply keeping the lights on.

Technology adoption is emerging as a potential catalyst for growth. Around two-thirds of tenants reported that tech adoption over the past year had a positive impact on their efficiency. However, the report also notes that many tenants have been slow to adopt the very tools that could address internal cost pressures and utility management.

Moving toward a partnership model

Ultimately, the 2026 Voice of the Commercial Tenant Report is an urgent call for a shift from a transactional mindset to a proactive partnership model. Tenants explicitly associate strong landlord engagement with greater stability and a willingness to renew. Issues such as rental affordability, billing transparency and maintenance quality are no longer just nice-to-haves but are key pillars of a functioning property-dependent economy.

“The central message of this research is that managing sentiment early is the difference between stable income and avoidable vacancy,” says Waldo Marcus, director at TPN Credit Bureau.

“Renewal outcomes are increasingly driven by a tenant's perception of value and real affordability. For the commercial-property sector to remain resilient, the wider ecosystem must address the core pain points: rental flexibility, infrastructure reliability and proactive engagement.

"As renewal risk builds among neutral-rated tenants, the ability to interpret these sentiment signals will be the difference between maintaining occupancy and facing rising vacancies in the years ahead.

“Landlords who identify and engage with cost-sensitive tenants ahead of renewal will be best positioned to navigate the transformational journey commercial occupiers are on towards sustained growth in a fragile local and global economy facing both new and existing pressures.”


 
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