The property sector will probably enjoy continued growth in 2025, driven by recent interest rate cuts, strong performances in the retail and industrial markets and a stabilising office sector.
These factors are fuelling investor optimism, suggesting a positive outlook for the year ahead. After a strong rebound in October, real estate investment trusts (Reits) posted a 34% year-to-date return, outperforming other asset classes, including equities, which gained 15.9%, and South African bonds, which returned 16.7%.
According to independent property analyst Keillen Ndlovu, the sector’s outlook started to improve in the second half of 2024 as most Reits and property companies, which reported lower earnings in 2024, projected modestly positive earnings growth for 2025.
“Despite higher interest rates, the balance sheets have been well managed with loan-to-value ratios and interest-cover ratios on average under control,” said Ndlovu.
The disposals around book value and recent acquisitions took away some criticism and concern that listed-property assets could be overvalued.
— Keillen Ndlovu, property analyst
Over the past two to three years, the sector sold many assets, often at or near book value, primarily to reduce debt. Ndlovu said there was a visible shift in the sector in 2024 as it moved from being a net seller to a net buyer of assets, especially in the retail sector.
Examples of these acquisitions include Redefine Properties’ R1.85bn purchase of Mall of the South and Vukile’s R800m acquisition of BT Ngebs City, now known as Mall of Mthatha, in which it owns a 50% stake.
“The disposals around book value and recent acquisitions took away some criticism and concern that listed-property assets could be overvalued,” he said.
The sector experienced rising interest from institutional investors, including multi-asset funds and general investors.
Performance indicators
South African Reit Association chair and Growthpoint Properties South Africa CEO Estienne de Klerk said 2024 saw improvements in key property performance indicators, boosting investment potential and expectations for net rental growth. Expected interest rate cuts further strengthened investor confidence, enhancing the sector’s 2025 outlook.
While the impact of interest rate cuts may not be immediate, they would help Reits raise capital, refinance loans and acquire new assets. Echoing Ndlovu, De Klerk pointed out Reits had focused on strategically selling noncore assets, optimising portfolios and implementing proactive asset management to enhance property values and maintain long-term liquidity and balance sheet strength.
“Lower interest rates help improve interest cover ratios and earnings as debt is refinanced at more favourable rates. This also enhances the financial health of tenants, increasing their ability to pay rent or absorb rental increases, while boosting the demand for more space as businesses and cash flows improve,” said Ndlovu.
He expected improvement across all sectors, with the industrial sector, a consistent outperformer, likely to continue to do well. Lower interest rates are expected to stimulate consumer spending, benefiting the retail sector, especially township and rural retailers.
“The office market is expected to see vacancy rates improve, though rental growth will only occur after a significant reduction in vacancies. The residential sector is likely to remain resilient, with low vacancies and arrears, as demand continues to outstrip supply. While the ability to absorb rent and utility increases remains a challenge, this could improve if the economy strengthens.”
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