South African REITS are on a strong growth trajectory heading into 2025 due to rising demand and increased market activity, alongside declining interest rates.
The favourable prospects have also been acknowledged by investors on the JSE, as REIT prices made a strong recovery in October 2024 and have outpaced other asset classes, delivering a 34% return year-to-date. In comparison, the broader equity market has returned 15.9%, while South African bonds have gained 16.7%.
SA REIT Association and Growthpoint Properties South Africa CEO Estienne De Klerk said key factors contributing to this included the formation of the Government of National Unity (GNU) and a stable power supply, both of which had positively impacted the sector and had driven improvements in property fundamentals.
“In 2024, we saw notable improvements in key property performance indicators, signalling strong investment potential and supporting expectations for future net rental growth. The anticipation of additional interest rate cuts has further bolstered investor confidence, creating a positive outlook for the sector as we head into 2025,” he said yesterday in a statement.
This view was echoed on Monday by one of South Africa’s biggest REITs, Redefine Properties, which said in a statement that positive trends in retail sales, rental renewal rates, and visitor foot count all indicated good momentum in the retail sector, which boded well for South Africa’s future growth.
In August 2024, retail sales increased year-on-year by 3.2%, marking the sixth consecutive month of growth . Additionally, foot traffic in major shopping centres increased by 8.3% year-on-year during the second quarter.
De Klerk said, however, the cumulative 50 basis point rate cut so far was not a panacea - further cuts were essential for stimulating market demand and activity, as well as supporting growth in company earnings.
“While not immediate, additional rate cuts will support REITs in raising capital, refinancing maturing loans, and acquiring new assets,” he said.
To ensure long-term liquidity and a solid balance sheet, REITs were disposing of non-core assets, optimising their portfolios to enhance quality, and implementing asset management strategies to increase property values, he said.
Sentiment in the office sector had strengthened, evidenced by a surge in space inquiries and a decline in vacancies. In coastal regions, demand was outpacing supply in certain areas as more people returned to the office. However, oversupply still existed in Gauteng.
Meanwhile, in the retail sector, trading densities and rental growth were likely to improve further in 2025, said De Klerk.
The industrial property sector also continued to outperform, driven by strong demand, limited supply, and rising construction costs, all of which were fuelling rental growth.
He said shifts in how and where tenants occupy commercial space had resulted in increased demand for sustainable buildings, new and high-quality refurbished buildings across the industrial, retail, and office sectors.
REITs had made substantial solar power and water infrastructure investments to reduce carbon footprints and offer occupiers sustainable spaces to operate from.
SA REIT CEO Joanne Solomon said they had launched the SAREIT Sustainability Disclosure Guide in November, to set clear sustainability standards for the real estate sector in South Africa.
BUSINESS REPORT