SA real estate investment trusts (Reits) are expected to see share price improvements despite a dip in the last quarter of 2024 and in January 2025.
While the listed property sector faced some challenges recently, expected interest rate cuts and economic growth adjustments will help boost the sector, property group Rode said in its latest report. The listed property sector, along with equity and bond markets, rebounded in 2024 after years of decline.
Over the course of last year, SA Reits outperformed all other asset classes, delivering a 35% return, far surpassing the broader equity market, which gained 13%, and the bond market, which saw a 17% return. Though Reits are expected to bounce back, Rode predicts listed property will not lift payout ratios by much. Factors such as Donald Trump’s presidency in the US increasing uncertainty in the global environment, with SA likely to suffer as a result.
“The financial results of property companies reported in the fourth quarter of 2024 also appeared more promising due to improving property fundamentals, particularly those with retail assets. Turning to the latest share price performance, the positivity has faded somewhat, leading to a pullback of about 6% in the SA property index by February 14 compared with the peak reached in September 2024,” the report said.
In retail, we are seeing rental growth starting to emerge and we believe low vacancies, greater tenant affordability and high sales growth should support this.
— Ninety-One
SA’s largest asset management firm, Ninety-One, echoes Rode’s view that the property sector will see further growth, with rental reversions trending upwards across the retail, office, and industrial sectors.
“In retail, we are seeing rental growth starting to emerge and we believe low vacancies, greater tenant affordability and high sales growth should support this. Similarly, in offices, while there is divergence among different regions, we are starting to see reductions in vacancies,” Ninety-One said.
It said the sector was trading near its highest price to net asset value levels since before the pandemic struck in March 2020. However, the sector remained well below average valuation levels from a long-term perspective.
“We continue to see select opportunities in SA-orientated names exposed to retail and industrial subsectors (for example Hyprop, Equites Property Fund and Vukile), while the UK retail names (Hammerson and Shaftesbury Capital) also offer an attractive combination of yield, growth, strong balance sheets and accelerating improvement in fundamentals,” the group said.
Ninety-One said it expected a solid year for locally listed properties in 2025, even though most of the rerating had likely occurred, with fundamentals remaining favourable. However, prospects were closely tied to SA’s economic recovery and any disruptions, such as those seen early this year, could affect short-term sentiment.
The Rode report said property groups such as Texton, Attacq, Dipula, Fortress, Fairvest and Hyprop delivered strong total returns of 50%-70% last year. However, the performance of Accelerate and Delta bucked this positive trend.
According to the SA Reit Association, the sector is expected to deliver strong income returns of 8%-9% this year, driven by improving investor sentiment and property fundamentals, rising consumer confidence and falling interest rates.
However, Nedbank economist Nicky Weimar said the shifting global landscape could result in more persistent global inflation and fewer interest rate cuts in the US.
The risks of high rates and continued dollar strength could see the SA Reserve Bank adopting a more cautious approach in the coming months, after delivering rate cuts at its past three meetings, Weimar said.
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