SA’s REIT sector shows resilience despite global uncertainties

South Africa’s Real Estate Investment Trust (REIT) sector showed a recovery in February, rebounding by 1.2% after the price declines seen in January. This positive return outpaced the broader equity market, which remained flat at 0.0%, and the bond market, which posted a modest 0.1% gain. Despite this bounce-back, the sector has still posted a 2.5% decline year-to-date, underperforming both the equity and bond markets.
 
According to Ian Anderson, Head of Listed Property and Portfolio Manager at Merchant West Investments and compiler of the SA REIT Association’s monthly Chart Book, and Richard Henwood, Portfolio Manager at Merchant West Investments, the overall investment outlook for the sector remains positive for 2025.
 
They believe that investors can expect a modest improvement in property fundamentals and the possibility of lower interest rates. This outlook is supported by recent developments, such as the South African Reserve Bank’s 25-basis point rate cut, the formation of a Government of National Unity, a reduction in load-shedding, and the introduction of the two-pot retirement system at the end of 2024.
 
Considering these factors, the sector is projected to see average growth in distributable income of 3% to 5%—a positive turnaround after three years of stagnation. However, Anderson and Henwood caution that the market may face increased volatility due to global geopolitical tensions, particularly concerning US President Donald Trump’s ongoing threats of higher tariffs, which could fuel inflation and impact economic growth globally.
 
During the reporting period, volatility remained elevated across global financial markets, with heightened concerns over geopolitical risks. The potential for increased tariffs, especially on countries like China, Mexico, and Canada, could create inflationary pressures that complicate central bank efforts to cut interest rates further in 2025. In addition, weaker economic data from the US in late February raised concerns over the future growth prospects of the world’s largest economy.
 
In South Africa, the 2025 Budget Speech was delayed after cabinet rejected proposed fiscal measures, including a 2% VAT increase, further contributing to uncertainty in the market.

Amid these challenges, individual companies in the REIT sector have shown varying degrees of success. For example, Burstone’s partnership with TPG Angelo Gordon saw the acquisition of logistics assets worth A$280 million in Australia. At the same time, Dipula Income Fund reported strong growth in retail tenant turnover and improvements in operating metrics. Equites Property Fund also remains optimistic, forecasting stable dividends and a reduction in its loan-to-value ratio.
 
Overall, while the South African REIT sector continues to face challenges, particularly from global uncertainties, the sector’s fundamentals appear poised for gradual improvement.