Cape Town’s Proposed Rates: what’s on the Commercial Property horizon?
The City of Cape Town is facing potential backlash from the public and the business community after announcing a raft of significant rate hikes as part of the 2025/26 proposed budget.
These increases, which could see rates on valuable properties rising by double digits, could push up the operating cost of large buildings and ultimately result in rental increases should the plan proceed as envisaged.
Business owners and landlords are now scrambling to calculate exactly how much the City plans to increase rates, the justification for these hikes, and the reaction the decision has sparked from various stakeholders.
Let’s take a look at the budget proposal in detail and assess its potential impact on the property sector.
The Proposed Rate Increases: is the Valuation Effect to blame?
The City has proposed an average general rates increase of 7.96 percent, applying to commercial, industrial, and mixed-use properties as part of its official draft budget.
However, the real impact for commercial stakeholders is not just a result of the percentage hike itself but in the revaluation of properties that accompanies it.
- The City of Cape Town undertook a general valuation of all properties on the municipal roll in the year 2022.
- In some cases, particularly among high-value commercial buildings, this has led to sharp increases in municipal values.
As a result, certain ratepayers may see their monthly property tax bills rise by 20 to 30 percent or more, depending on the extent of the new valuation and location of the property.
For large office units, malls, and managed precincts, these costs could be passed directly to tenants, adding pressure to both sides of the lease.
The City’s Rates Justification: Infrastructure Demands and Ambitious Growth
While property owners and tenants raise concerns about the city’s steep rates increases, the mayor’s office is adamant that these tariffs are necessary in order to fund investments in infrastructure.
- According to the City, the proposed increases are essential for maintaining and expanding infrastructure to meet growing demand.
- Mayor Geordin Hill-Lewis has described the budget as a means to ensure that Cape Town remains the best-run metro in the country, citing urgent needs in water, electricity, roads, and sanitation systems.
- Finally, the city has reminded the public that Cape Town rates are still lower than those in Joburg for example, despite the fact that infrastructure in the Cape is considered to be vastly superior.
The City has allocated R84.1 billion in expenditure for the 2025/26 financial year, with a notable increase in capital spending to support bulk services and safeguard the urban environment.
This reflects a broader municipal strategy to fill gaps left by state-owned entities like Eskom and to ensure resilience. In contrast to the infrastructure deterioration seen in other metros, the city ostensibly views stronger municipal tax revenues as the price of continued reliability – but many business leaders disagree.
The Business Sector’s Pushback
While the City cites valid reasons for the proposed increases, many in the business sector view the proposals as poorly timed and even excessive.
- SAPOA, which represents South Africa’s leading property owners and developers, has expressed concern that the steep combination of revaluations and rate increases may undermine commercial viability.
- The organisation has called for more transparency around the budgeting process and a reassessment of how valuations are calculated.
Landlords are not alone in their concern. Cape Town Office tenants, industrial users, and retail operators are all expected to be affected, especially those on leases where increases in rates and taxes are directly recoverable.
One of the more controversial changes in the budget involves fixed service charges for water and sanitation being partially tied to property value.
This deviates from the standard consumption-based model, raising concerns about penalising efficient users and placing unduly large burdens on large commercial buildings with minimal resource use.
Can the Property Market Absorb Rate Hikes?
No matter what sector is involved, governments always like to assume that taxes and tariffs can be absorbed by buyers and sellers. But what will this mean for the commercial property market?
As 2025 approaches its midpoint, the market appears to be in good shape.
- According to the Cape Town Central City Improvement District’s (CCID) State of the Central City Report 2024, the city’s CBD vacancy rate had fallen to 7.5 percent, outperforming other major South African metros.
- Industrial and logistics spaces, along with office units (especially those in sought after areas) remain in strong demand with limited new stock coming to market.
- These properties have helped underpin the City’s economic resilience and have attracted local and international investment.
Nonetheless, escalating holding costs could begin to dampen this momentum.
For investors and developers, the new rates regime introduces additional risk that may tilt the scales when deciding where to allocate capital.
Cape Town will need to keep its rates competitive to maintain its reputation as the best place to live, work, and play in SA. Recent news reports suggest that this may already be happening in the form of a “softer” rates increase in the revised budget.
Implications for Owners, Tenants, and Investors
Depending on the extent of the rate hikes, both landlords and tenants may end up facing the prospect of increases.
- Commercial landlords may want to reassess their lease structures and rental increase clauses to accommodate the proposed hikes.
- Where leases allow for rates pass-throughs, tenants will need to evaluate the impact on their operating costs and potentially negotiate new terms.
As always, a seasoned broker can facilitate mutually beneficial agreements between landlords and tenants to turn a rates hike into a win-win outcome.
For investors, the key question is whether the City’s capital spending programme will deliver the infrastructure dividends being promised.
If execution matches ambition, Cape Town may justify its higher cost profile – especially given that the city is still relatively more affordable than Johannesburg in terms of rates. In the short term, property managers and portfolio owners will need to factor these increases into their planning.
In summary, budgeting for the 2025/26 financial year may require more conservative assumptions around rental escalations and occupancy levels.
Secure the Best Property Deal Before Rates Rise
The City of Cape Town’s proposed rates increases represent a potentially big shift in the cost structure of owning and operating commercial property in the metro.
If you’re in the market for an office or retail space in the Mother City, you probably know the benefits of living and working in a scenic, stable, and prosperous corner of the country.
Securing a property lease at 2025 prices could be a strategic win for your business.
To learn more about our portfolio of premier commercial properties in the Cape Peninsula, contact one of our area specialists today.
