The ongoing strengthening of property fundamentals, combined with rising demand and increased market activity, alongside declining interest rates, will position South African REITs for a strong growth trajectory heading into 2025.
The REIT sector, which made a strong recovery in October 2024, has 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%.
Key factors contributing to this outperformance include the formation of the Government of National Unity (GNU) and a stable power supply, both of which have positively impacted the sector and driven improvements in property fundamentals.
Estienne De Klerk, Chairperson of the SA REIT Association and Growthpoint Properties South African CEO commented:
“In 2024, we have seen 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 and sentiment, creating a positive outlook for the sector as we head into 2025.
However, the cumulative 50 basis point rate cut so far is not a panacea – it is 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.”
To ensure long-term liquidity and a solid balance sheet, REITs have remained focused on strategically disposing of non-core assets, optimising their portfolios to enhance quality and implementing proactive asset management strategies to increase property values, he said.
De Klerk noted that sentiment in the office sector has strengthened, evidenced by a surge in space inquiries and a decline in vacancies. In coastal regions, demand is now outpacing supply in certain areas as more people return to the office. However, oversupply still exists in Gauteng.
Meanwhile, the retail sector is growing. As consumer sentiment improves, De Klerk expects to see better trading densities and rental growth in 2025. The industrial property sector continues to outperform, driven by strong demand, limited supply and rising construction costs, all of which are fuelling rental growth—this trend is set to continue into 2025.
Sustainability
Shifts in how and where tenants occupy commercial space has resulted in increased demand for sustainable buildings, new and high-quality refurbished buildings across the industrial, retail and office sectors.
REITs have made substantial investments in solar power and water supply infrastructure, continually enhancing their buildings to reduce carbon footprints while offering occupiers high-quality, sustainable spaces to operate from.
For many, sustainability is embedded in their organisational DNA and core business strategies for long-term benefits.
“In November, we launched the SAREIT Sustainability Disclosure Guide to set clear sustainability standards and best practices for South Africa’s real estate sector. We are confident that this initiative will play a pivotal role in supporting our members on their sustainability journeys,” said Joanne Solomon, CEO of SA REIT.
As a key player in addressing environmental, social and governance (ESG) challenges, the guide will provide strategic direction for the industry, helping to shape a future where sustainable practices are seamlessly integrated into business strategies, driving both resilience and long-term value,” she added.
