In the space of two weeks, both the cost of money and the cost of moving goods went up. On 23 September the South African Reserve Bank raised the repo rate by 25 basis points to 7.25%, which took the prime lending rate to 10.75%. It was the second increase this year, after May. Then on 7 October fuel prices rose sharply: wholesale diesel went up by between R2.84 and R3.24 a litre and petrol by as much as R3.33, according to the government's announcement on 5 October.

Neither move is a crisis on its own. Together they put pressure on both sides of a commercial lease, and landlords who plan for it now will be in a far better position at renewal time than those who wait.

Why both increases happened

The Reserve Bank was clear that fuel is the problem. "A few months back, it seemed that the fuel-price shock might be unwinding, but now it has intensified," Governor Lesetja Kganyago said after the unanimous decision, as reported by eNCA. The October fuel adjustment shows why. The average Brent crude price rose from about US$88 to US$101 a barrel over the review period, with tension between the US and Iran and uncertainty over shipping through the Strait of Hormuz cited as causes, while the rand barely moved.

Headline inflation was 4.4% in August, according to Trading Economics' summary of the Stats SA release, but transport costs were up 8.8% year on year and electricity and other fuels 8.3%. Briefly News reported that the Bank expects headline inflation could rise above 5% over the last months of this year before easing towards its 3% target by late 2027. In plain terms, landlords should not plan around quick rate cuts.

What it means for owners

Finance costs come first. Most bank finance for private commercial property owners is priced off prime or JIBAR, so it moves with the repo rate. Every 25 basis points on a R10 million facility adds about R25,000 a year in interest. After two increases this year, that is around R50,000 on the same facility. Owners who bought on thin yields should rework their numbers now rather than when the bank reviews the facility.

Operating costs are next. Diesel is no longer only the tenant's problem. Buildings that rely on generators for backup power, security patrols and contractors who price in travel all become more expensive to run. On a gross lease those costs come straight out of the landlord's net income. On a net lease they flow to tenants through recoveries, which is fair, but it raises the tenant's total cost of occupation. Our guide to net and gross leases sets out who carries what.

Then there is tenant affordability. Logistics, distribution and light manufacturing tenants feel diesel first. When their margins tighten, the early signs are later payments, requests to defer an escalation, or questions about subletting part of the space. None of those is a reason to panic, but each is a reason to talk to the tenant early.

What to do now

  • Re-run the numbers on every bonded asset at a prime rate of 10.75%, and check your interest cover with at least one more 25 basis point increase built in.
  • Review recoveries. Make sure generator diesel, security and maintenance call-outs are recovered correctly under each lease and billed promptly. Under-recovered operating costs are one of the most common leaks in a building's income.
  • Get ahead of renewals. A tenant under cost pressure is more likely to leave at expiry than one whose landlord has already discussed terms. Our note on lease escalations covers where fixed and CPI-linked escalations sit today.
  • Watch arrears weekly rather than monthly. The first missed payment is the cheapest one to resolve.
  • Do not cut maintenance to protect cash flow. Deferred maintenance shows up later as vacancy, and vacancy costs far more than diesel.

What it means for buyers and sellers

Higher rates feed straight into what buyers are willing to pay, because a property's yield has to clear the cost of finance. For sellers, that argues for realistic pricing from day one rather than testing the market with a high number and cutting later. For buyers with cash or low gearing, it can be a better time to negotiate, particularly on well-let industrial stock with a strong tenant. Our explainer on cap rates shows how quickly a small change in yield moves value.

How Stone Capital can help

Stone Capital manages commercial and industrial property for private landlords, family offices and trusts, from 5% of gross rental collected. That covers recoveries, arrears and renewals, which is exactly where cost pressure shows up first. If you would like a second opinion on how these increases affect your building, speak to our management team. If you are weighing up a sale or a purchase in this market, our off-market acquisitions desk works with buyers and sellers privately.

This article is general information, not financial advice.