Octodec is seeing leasing momentum pick up, with the Reit pointing to firmer demand and shrinking core vacancies as tenants start returning to the market on the back of the recent sequence of interest rate cuts.
The group, which owns buildings mainly in CBD areas, reported an 8.2% increase in distributable income per share due to resilient portfolio performance and said the lower long-term consumer price index (CPI) target — including the possibility of further interest-rate cuts — could support new growth opportunities, it said in its results for the year to end-August.
“Despite improved trading conditions, challenges remain. The lower inflation and reduced interest rates, however, should support the economy and create opportunities for Octodec in the long term,” the group said.
The group’s basic and diluted earnings per share rose to 127.5c, while headline earnings per share increased to 15.2c. The board declared a final dividend of 72.5c per share, lifting the total payout for the year to 134.5c.
Residential and shopping centres remained the star performers in the portfolio, anchoring a 4.6% rise in revenue to R2.2bn. The broader portfolio — valued at R11.2bn — saw contributions from all sectors, underscoring the steady recovery across Octodec’s assets.
Net property expenses rose 4.1%, driven by above-inflation increases in utilities, cleaning, security and bad debt provisions. Administrative and corporate expenses grew 4.9%.
Meanwhile, total core vacancies fell to 12.3% from 14.9%, while collections remained strong at almost 100% of total billings. Reversions also showed positive momentum.
“Financial year 2026 will present the added challenge of the vacant space left by the City of Tshwane at Capitol Towers (CTN) North and Transpharm at Talkar, which together total 18,959 m²,” the group said.
However, the group sees a potential silver lining in its affordable housing project Yethu City — a co-living development in the Pretoria CBD. The group said the 12,086m² at CTN is unlikely to be let in the short to medium term, making the property a prime candidate for conversion into a new residential offering, it said.
While the Talkar property is being marketed for relet, being considered for disposal since it is no longer in the investment node of the group.
Lilian Ngoyi Street in Johannesburg CBD, which was damaged in a gas explosion in July 2023, remained under repair for the full financial year. Access to the group’s 14 properties was limited, affecting both retail and residential trading. The street reopened on September 12 and the group expects trading conditions to improve as footfall and spending gradually recover.
“The residential portfolio achieved a decrease in vacancies from 9.2% to 8.0%, alongside a 5.4% increase in rental income. Improved occupancy at The Fields, boosted by higher National Student Financial Aid Scheme (NSFAS) accommodation allowances and pre-approval of NSFAS-funded students, had a tangible impact,” the group said.
The residential segment is seeing strong demand, driven by a shortage of quality, affordable accommodation. This creates opportunities for Octodec to convert underperforming offices into residential or mixed-use assets, tapping into a market gap, it said.
Octodec’s 50% joint venture, Blaauw Village in Pretoria North, performed well with income rising 81.8% on the back of rental growth and cost efficiencies.
In Johannesburg, the group’s street retail portfolio continued to face challenges as tenants grappled with weak consumer spending and the lingering effect of damage on Lilian Ngoyi Street. Despite this, rental income rose 1.2% (2.0% like for like) and core vacancies fell from 14.0% to 12.0%.
Proceeds from property disposals were used to reduce debt, bringing outstanding borrowings down from R4.4 bn to R4.3 bn and lowering the group’s loan-to-value ratio 38.2%.
Octodec ended the period with R800m in unutilised banking facilities and a further R200m in unsecured corporate bonds was raised post-year-end.
Despite tailwinds, the group looks forward to addressing vacancy challanges as economic pressures persist, exploring the Yethu City concept for one property while marketing the other for relet or potential disposal. Octodec now expects distributable income and distribution per share to grow 0.0%-4.0% in the 2026 financial year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.