Almost every commercial property in South Africa is priced off one number: the capitalisation rate. Divide a building's net annual income by its cap rate and you have its value. Understand how that number is set — and how it moves — and you understand most of what drives commercial property prices.

The mechanics

A building producing R1.2 million net income, valued at a 10% cap rate, is worth R12 million. The same income at an 8.5% cap rate is worth R14.1 million. Note the leverage: a 1.5 percentage-point cap-rate move changed the value by 17% with not a rand of income growth. This is why investors obsess over what cap rate a node, sector or tenant covenant "deserves".

What sets the rate

Cap rates price risk against the alternatives. The anchor is the risk-free rate — SA government bond yields — plus a property risk premium, adjusted for asset-specific factors: tenant covenant strength, lease length (WALT), building quality and location, and the sustainability of the current income against market rentals. A single-tenant building on a 10-year triple-net lease to a national retailer prices tighter than a multi-tenant building of month-to-month leases, because the income is more certain.

Where SA cap rates sit in 2026

Broad ranges: prime offices 7–8.5%, industrial and logistics 9–11%, retail centres roughly 8–10% depending on grade and anchor strength, with secondary and higher-risk assets pricing into the 11–13% band. These are yield ranges, not prices — an asset's specific rate lands within (or outside) them on the strength of its lease profile.

The traps

Two errors dominate. First, capitalising an over-rented income stream: if in-place rentals sit above market because of years of 8% escalations, that income reverts at renewal and the "yield" you bought evaporates. Second, ignoring capex: a 10% yield that needs a roof, a lift overhaul and a power retrofit is not a 10% yield. Serious buyers value off sustainable net income after normalised capex — and negotiate off that number.

Stone Capital's investment desk models sustainable income, reversion risk and realistic cap rates on every asset it brokers. View current opportunities →