Real estate investment trusts (Reits) are on track for a rebound, with earnings growth poised to recover in 2025 as employers call employees back to the office — boosting the office property sector.
Analysts and stockbrokers predict that almost all Reits and property companies could deliver positive earnings and dividends this year, with an average earnings growth outlook of 3%-4% in 2025.
So far, the year-to-date performance shows that the SA property index has declined 3.5%, while bonds have gained 0.7%, equities are up 5.9%, and cash has increased 1.9%.
“The stabilising office market, driven by employees returning to offices three to four days a week, and even five days for some, alongside a stable industrial market, and an improved retail sector — boosted by lower interest rates, two-pot retirement system withdrawals, and centres located near office nodes benefiting from employees returning — are key factors contributing to the positive outlook,” said independent property analyst Keillen Ndlovu.
According to the SA listed property earnings distributable income per share growth outlook, Attacq, owner of Mall of Africa, is expected to outperform its peers, with a market-leading earnings growth forecast of 24%-27%.
This excludes Mas, which shows a 21.2%-38.2% earnings rise in euros due to its exposure in Central and Eastern Europe, noted Ndlovu.
Ndlovu said that the positive earnings outlook was due to lower interest costs and the reduction or absence of load-shedding, resulting in savings on diesel and no lost trade from abandoned shopping trips or spoiled food due to power outages.
The prospects of the office property market, which is slowly firming after years of weak performance, was confirmed by the FNB Property Broker Survey in March that predicts a strengthening of the market in 2025-2027.
Anchor Stockbrokers head of research Craig Smith told Business Day that property companies had an opportunity to grow earnings and rental income in line with inflation, with rents now more aligned to the market and annual escalations about 6%-7%.
These factors further enhance the positive outlook for the property sector.
“Property fundamentals in SA have improved, though modestly to date, due to factors such as reduced load-shedding, declining interest rates, and healthier company balance sheets. Combined with the limited supply of new properties, this is generally supportive of the outlook for the commercial property sector in SA,” Smith said.
Ndlovu said that Reits’ debt levels have remained manageable, supported by asset sales to reduce debt, improved asset values due to better operating conditions since the pandemic, and the boost from lower interest rates, all of which are helping to turn the tide.
For example, Burstone, formerly Investec Property Fund, expects a loan-to-value ratio of 34%-36% for the 2025 financial year, from 44% after Blackstone acquired an 80% stake in its pan-European logistics business. Its interest coverage ratio has also improved to more than four times.
However, Burstone’s distributable earnings per share are expected to decline 2%-4%, the group said in its preclose update for the year ended in March.
“However, downside risks that could be alarming for the listed property sector include the GNU [government of national unity] not working out as expected, economic growth stalling, investor sentiment shifting back to offshore investments, and a VAT increase negatively affecting consumer spending”, Ndlovu said.
Other risks include the policies of US President Donald Trump, fewer interest rate cuts than expected, continued above-inflation increases in municipal charges, worsening water outages, and the ongoing threat of load-shedding.
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