The Western Cape is keeping the Spear real estate investment trust (Reit) head high, with the group remaining resilient against broader economic challenges.
Its resilience is rooted in the region’s focus on sustainable growth, the positive effects of semigration, and a governance framework that continues to drive stability and opportunity.
Despite a challenging trading environment, affected by rising interest rates and increased repair costs from heavy rainfall and severe weather between June and August, the company remains resilient. Spear, which is focused on the Western Cape, reported strong leasing momentum in the first half of its 2025 financial year. The company made progress in reducing the overall vacancy rate across its portfolio, with notable improvements in the office sector.
Curwin Rittles, an analyst at Metope Investment Managers, said Spear’s performance was in line with expectations.
“The portfolio is performing well and continues to show that the Western Cape remains relatively insulated from SA’s broader economic challenges, benefiting from its regional focus,” Rittles said. “However, credit should also go to the leasing team for their efforts. The improved occupancy in the commercial sector should be well-received, and the outlook for the sector remains optimistic, with potential for future rental growth.”
The Reit’s industrial portfolio remains a top performer, with well-located assets boasting a 96.64% occupancy rate. Meanwhile, the return-to-office trend in Cape Town has boosted Spear’s office portfolio, leading to big vacancy reductions across its commercial holdings, with the occupancy rate at 90.53%.
In the first half of 2025, Spear outpaced its peers in terms of rentals, with reversions turning from slightly negative in the 2024 financial year to positive, driven by successful renewals and reletting. Vacancy rates across the portfolio improved to 4.92% at the end of the period, down from 6.88% in the 2024 financial year and more than 9,000m2 of commercial office vacancies were let.
Emira Property Fund CEO Geoff Jennett said that, in addition to Reits returning more than 50% this year, the most noticeable signs of a real estate recovery were in the Western Cape, where office spaces that were vacant just 18 months ago were now fully occupied.
“The semigration trend to the province is part of this. But it’s not the whole story. Improving sentiment post the government of national unity (GNU), less load-shedding easing strain and costs, and the first reduction in interest rates, with the expectation that it will fall further, are countrywide factors all contributing to a surge in sentiment and confidence,” Jennett said.
The property sector was hit hard by Covid-19, and recently experienced a resurgence in interest after the US Federal Reserve’s decision to cut interest rates by 50 basis points (bps) at its September meeting, while the Reserve Bank’s monetary policy committee reduced its benchmark rate by 25bps in September and could cut further at its meeting later this month.
The share price of Spear, which has a market cap of about R3.3bn, has risen 18.44% over the past 11 months. The Reit reported a 22.24% rise in distributable income at the halfway stage of its financial year.
Total distributable income rose to R111.2m in the six months ended August from R90.99m a year ago, while the balance sheet remains strong with a loan-to-value ratio of 23.93%, well below the sector average of 40%.
According to Nedbank senior property analyst Ridwaan Loonat, Spear enjoys a high-average in-force escalation rate and has managed to achieve positive rental reversions and reduce vacancy rates, which supported revenue growth during the period.
“The geographical profile of being Western Cape only has gained the interest of many investors given good governance and the effects of semigration. Other aspects include a strong balance sheet, respectable earnings growth with attractive yield,” Loonat said.
Spear’s loan-to-value ratio was below the sector average, meaning the group had the flexibility to offer a higher payout ratio. However, management would need to consider factors such as tax leakage and capital expenditure need when setting the payout ratio, he said.
Spear is poised for growth as it integrates Emira’s previously owned Western Cape portfolio for R1.146bn, expanding its asset base to 40 properties valued at R5.4bn. /With Jacqueline Mackenzie
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