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There is a quiet shift happening in South African business, and you can see it most clearly if you watch what is happening to physical space. Across our parks in Johannesburg and Cape Town, the conversations we are having with tenants today are very different from the ones we were having two years ago.
Let me be clear about one thing up front: businesses are not asking for less space overall. The economy is expanding, e-commerce volumes are still growing, and operators still need somewhere to keep stock, run logistics, and serve customers. What has changed is the preference. Tenants increasingly want smaller, more flexible, better-located units rather than one large, fixed footprint. For me, there are two forces I would like to highlight which I believe are playing a dominant role in driving this - meaningful improvements in supply chain and logistics, and the rapid advancement of AI. Together, they are letting businesses do far more with less.
At Inospace, our vacancy rate has halved over the last twelve months. That is not a marketing line - it is a signal. And when you read it alongside what is happening globally and locally, the picture starts to make a lot of sense.
A recent piece from JP Morgan Asset Management on the global industrial sector made the point sharply: the structural shift to e-commerce continues to drive demand for industrial and logistics space, even as the broader real estate market wobbles. Online retail requires materially more warehousing per rand of sales than store-based retail does - individual item picking and packing, parcel sortation, returns processing, and the buffer stock needed to meet rapid fulfilment promises all add up. Every percentage point of e-commerce penetration translates into measurable warehousing demand.
South Africa is still in the early innings of this trend, which makes it more interesting, not less. E-commerce in SA has been growing at a far quicker clip than developed markets - World Wide Worx has tracked annual growth rates north of 25% in recent years, with the sector now firmly past the R70 billion mark. Takealot, Checkers Sixty60, Mr D, Superbalist, and a long tail of independent online sellers are all chasing the same goal: getting product to the consumer faster.
Crucially, the demand is not only coming from the big players. It is coming from the long tail. SMEs, online sellers, niche brands, and third-party logistics operators - these are the customers walking through our doors. They do not want one 5,000 square metre warehouse on the outskirts. They want multiple 100 square metre units in the right nodes, with the option to take adjacent space when they grow. SMEs already contribute roughly 40% of South African GDP, and they are the engine driving demand for the kind of small, flexible, well-located space we specialise in.
The other side of the e-commerce story is what is happening behind it. Logistics and supply chain technology has improved enormously over the last five years. Real-time inventory visibility, smarter route optimisation, and the rise of capable third-party logistics providers mean a business no longer needs to hold months of stock in a single mega-warehouse. They can hold the right stock, in the right place, at the right time - and they can do it in a smaller footprint.
Geopolitics has reinforced the trend. The renewed tensions in the Middle East, the spike in oil prices, and the disruptions to Red Sea shipping routes have all reminded us how fragile globalised supply chains really are. The response from businesses is rational: hold stock closer to the customer, build redundancy into the network, and stop treating the warehouse as a single point of failure. Global research from CBRE has shown that proximity to the end consumer can reduce delivery costs by up to 25%. In a country as geographically spread as ours, that proximity is not a luxury - it is a competitive advantage.
The other force quietly redrawing the map is artificial intelligence. McKinsey estimates that generative AI alone could add between $2.6 and $4.4 trillion in value to the global economy each year. That is a staggering number, but the more useful question for a South African business owner is the one closer to home: what does it mean for me, today?
In our experience, the answer is one word - efficiency. AI is allowing businesses to do more with less. Less admin overhead. Less duplicated effort. Less wasted time. A two-person operation today can run inventory forecasting, customer service, marketing, and bookkeeping with a sophistication that would have required a team of ten just five years ago. PwC's 2024 CEO survey found that around 70% of CEOs globally believe generative AI will significantly change how their company creates and delivers value within the next three years.
In a market where margins are tight, the rand is volatile, and skilled labour is hard to find, that efficiency gain is not a nice-to-have. It is the difference between scaling and stalling.
Internally, we live by a simple philosophy at Inospace: we should be doing things better today than we were yesterday. We encourage our team to walk in every morning asking how we can improve, automate, or simplify. AI has become the most powerful tool in that pursuit we have ever had access to and we are seeing exactly the same shift in our clients' operations. They are leaner, faster, and more ambitious about what a small footprint can achieve.
There has been a lot of talk recently about Cape Town pulling away from Johannesburg as the country's preferred investment destination. Capital is voting with its feet - better governance, better infrastructure, a functioning city, and the now well-rehearsed concerns about Johannesburg's financial position have all reinforced the narrative. On most measures, the gap is real and it is widening.
But our sector tells a more nuanced story. In industrial and small-bay logistics, the occupancy gap between Johannesburg and Cape Town is not as wide as the broader investment narrative would suggest. Yes, rentals are climbing more aggressively in Cape Town, where demand is comfortably outpacing new supply. But Johannesburg is also seeing a strong uptick in occupancy and consistent, durable demand - despite every challenge thrown at it.
That tells you something important. Johannesburg remains the economic engine of the country and Southern Africa's largest consumer and logistics hub. Goods still need to move through it, be stored near it, and be distributed from it. The fundamentals of industrial demand are proving more resilient than the political headlines suggest. For investors and operators willing to look past the noise, that resilience is a meaningful signal - and one we are seeing reflected directly in our own numbers across both cities.
Put these forces together - e-commerce growth, smarter logistics, AI-driven efficiency, and the resilience of industrial demand even in tough nodes - and the profile of the modern small-space occupier looks very different from a decade ago. They are digitally native. They are nimble. They are running businesses with national or global reach out of compact, well-located footprints. They want short, flexible terms. They want backup power, fibre, security, and infrastructure that supports technology, not just storage. And they want a landlord who understands that their needs in twelve months may look nothing like their needs today.
That is the world we have built Inospace for. The halving of our vacancy is not a coincidence - it is the market telling us, clearly and consistently, what it needs.
The South African businesses that will thrive in the next five years will not necessarily be the biggest. They will be the most adaptive. They will use space more intelligently, technology more aggressively, and proximity more strategically. Real estate, in this new world, is not just about square metres - it is about enabling the kind of agility that modern business demands.
And from where we sit, watching small spaces fill up faster than ever in both Johannesburg and Cape Town, the future of South African business looks smaller, smarter, and a lot closer to home.
