Residential struggle continues as non-residential building gains ground

Source: Supplied. Siphamandla Mkhwanazi, Senior Economist: FNB.

The current reading means that the majority (almost 60%) of respondents are dissatisfied with prevailing business conditions.

Compared to 4Q2024, the following changes to sentiment were registered: hardware retailers (+9), quantity surveyors (+4), building sub-contractors (+3), building material manufacturers (-2), architects (-4) and main contractors (-6).

After registering a solid improvement in 4Q2024, the index measuring activity among main building contractors eased in 1Q2025. Consequently, overall profitability came under severe pressure. This weighed on sentiment with the index losing six points to register a level of 45.

The latest data from Statistics South Africa (Stats SA) shows that the real expenditure on building investment declined by 2.6% year-on-year (y-o-y) in 4Q2024. This was largely due to an almost 6% y-o-y fall in real residential building investment while, real, non-residential building investment rose by 4.7% y-o-y.

Non-residential outperforms again

The results for this quarter revealed that activity among non-residential builders continued to outperform that of residential builders, although both had worsened somewhat. “The industrial and warehousing sub-sector has held up well over the past few years, supporting at least some non-residential building work.

"Now, we are seeing signs that demand for retail space – and to a lesser extent, office and banking space – is picking up too, which further supports the non-residential outperformance. The residential sector, in contrast, is still struggling despite the cumulative 75 basis points reduction in the repo – and prime rate – since the end of last year,” remarked Siphamandla Mkhwanazi, senior economist at FNB.

Despite a deterioration in activity and profitability, which weighed on sentiment this quarter, building contractors are optimistic about prospects for activity, employment, profitability and general business conditions next quarter. “While such optimism is encouraging, the risk exists that sentiment will fall further if these expectations do not materialise,” cautioned Mkhwanazi.

The business confidence of building sub-contractors edged higher this quarter (to 42), largely because of higher activity.

Architect sentiment drops

Architect confidence declined for a second consecutive quarter to record a level of 38 in 1Q2025. Sentiment moved lower despite an uptick in activity.

“Better activity at the start of the building pipeline signals more building projects in future and aligns with building contractors’ expectations of more work next quarter. However, architects increasingly consider municipal inefficiency, such as delays in getting building plans passed and approved, as hindering business operations. This, in turn, weighs on their sentiment,” stated Mkhwanazi.

In contrast to architects, activity among quantity surveyors worsened, but confidence gained four points.

At 59, hardware retailer confidence is at its highest level since the start of 2022. Underpinning the better sentiment is continued improvement in sales. According to Mkhwanazi, “the hardware component of the retail sector underperformed relative to other retail spending categories last year. However, sales over the last two quarters benefitted from the lower interest rate and inflation environment, and the financial windfall to households from the retirement reforms”.

The sentiment of building-material manufacturers fell two points to 16 in 1Q2025 despite an uptick in activity, as production costs jumped sharply.

Building confidence steady

In conclusion, the FNB/BER Building Confidence Index remained relatively stable in 1Q2025, gaining one point to record a level of 41. The results were mixed in terms of activity but, overall, reflected a sector which saw a slight worsening in current work. Near-term prospects for work, however, are encouraging from both contactors’ own expectation and also from the better activity reported by architects which reflects the building pipeline.

“Contractors seem to be anticipating more work over the next few months and this, in part, sustained sentiment. However, this does pose a risk to the business mood should these expectations not materialise, which our initial reading of the broader demand drivers suggests is possible. In addition, delays at municipal level again seem to stand out – in the comments to the survey - as a crucial hindrance to faster development, specifically in preparing work and plans for construction, further highlighting the risks to the optimistic near-term view,” concludes Mkhwanazi.