South African businesses are being squeezed from every direction. With weak economic growth, rising utility costs, infrastructure instability, compliance pressure, and subdued consumer demand, the last thing many companies need right now is commercial rental escalations that bear little resemblance to economic reality.
By Richard Firth, CEO of MIP Holdings
Yet annual escalations of between 7% and 9% remain common, despite CPI sitting closer to 3%. Annual rental escalations have become standard practice across South Africa’s commercial property sector, and have largely been considered normal, almost automatic, regardless of what is happening in the broader economy. This attitude is prompting many businesses to re-evaluate their real estate portfolios and occupancy strategies, as current rental pricing increasingly makes property ownership more cost-effective than leasing.
Stable businesses are starting to push back
According to the inaugural 2026 Voice of the Commercial Tenant Report by TPN Credit Bureau, the rental market may already have reached an escalation ceiling. More than half of tenants say increases above 4% are no longer sustainable. That should concern landlords far more than it currently appears to, because the warning signs are no longer coming only from distressed tenants, they are coming from stable businesses.
For many organisations, rent is no longer just a fixed operating cost. It is becoming a strategic pressure point. Companies are being forced to invest in backup power, absorb rising municipal costs, navigate logistics challenges, and fund digital transformation initiatives simply to remain competitive. Excessive rental escalations add pressure without adding value.
The report highlights that the biggest renewal risk sits with “neutral” tenants, or companies that are still paying rent, still operating, and still compliant, but increasingly questioning whether the cost of staying outweighs the value of remaining. These are not failing businesses, they are rational businesses making rational financial decisions, and many are beginning to renegotiate, relocate, or reconsider how much space they actually need.
In other words, businesses are adapting faster than many property models are. The TPN data reflects this clearly, with companies actively reducing unnecessary space because survival increasingly depends on operational efficiency. Commercial property cannot continue pricing itself as though businesses are operating in a high-growth economy when they are clearly not.
A reset for commercial property
The argument is not that landlords are wrong to protect returns. Property owners face rising costs too, including municipal increases, maintenance expenses, energy investments, financing pressures, and infrastructure challenges. However, the answer cannot simply be pushing standardised escalations onto tenants regardless of economic conditions.
The more important question now is how landlords can preserve long-term occupancy and tenant stability in an economy under pressure. That requires a different mindset, with the commercial property sector moving away from rigid, blanket escalation structures and toward more adaptive leasing models. This could range from escalations linked more closely to CPI or sector performance, to tiered escalation structures based on lease duration or tenant stability, or even incentive-based renewals for long-term tenants, because an aggressively priced building with rising vacancies is not a strong asset for the property owner.
Landlords and tenants need to start behaving less like opposing parties and more like economic partners. The TPN report points out that tenant renewal decisions are increasingly driven by perceived value and landlord responsiveness, not just location or lease terms. Businesses are more willing to tolerate pressure when landlords demonstrate flexibility, transparency, and engagement.
Ultimately, the commercial property sector needs to recognise that sustainability is no longer just about protecting asset values, but about protecting the businesses that occupy those assets. In an economy where companies are under relentless operational pressure, inflexible rental models risk pushing stable tenants out of the market entirely. The landlords that will emerge strongest over the next few years will not necessarily be those charging the highest escalations, but those building long-term, resilient tenant relationships through flexibility, transparency, and shared economic realism.