Online Reporter
The SA listed property sector was again the best performing asset class last year.
The SA listed property index (J253) achieved 29 percent total returns (income and capital) in 2024, a significant increase compared to 10.1 percent in 2023.
This was ahead of bonds (Albi), the second best performing asset class, for the second year running, with returns of 17 percent and 9.7 percent respectively over the same periods.
It’s important to highlight that SA listed property returns have recovered off a low base after being negatively impacted by the pandemic, higher interest rates, and load shedding.
Listed property was the worst performer in 2022, with a 0,5 percent return.
In comparison, according to data from Sentio Capital, global property, as measured by the S&P Global Property Index, achieved -18,2 percent, 18,7 percent, and 6,6 percent, in rand terms, in 2022, 2023 and 2024 respectively.
The year 2024 ended with 280 consecutive days of no load shedding.
No load shedding resulted in savings on diesel costs (to power generators), no traffic delays (due to traffic lights not working, which generally results in abandoned shopping and business trips), and no lost trade (some shops closed due to lack of full backup power), spoiled food (with refrigerators not working) and mobile signal issues affecting transaction payments, online shopping including food/grocery deliveries and access to e-hailing services like Uber and Bolt).
The property sector has been boosted by the recent interest rate cuts, good performance from the retail and industrial sectors, and a stabilising office market, which has seen vacancies fall (with most workers returning to offices three to four days a week after working at home full time).
Institutional funds and generalists increased their interest in listed property during 2024. Alex Forbes’s data shows that listed property exposure in balanced/multi-asset funds increased from 2.8 percent in 2023 to 3.5 percent in 2024.
Given that listed property outperformed other assets, market movement also helped increase listed property weighting in portfolios.
In addition to increased listed property allocation, the sector raised about R13 billion from South African-based investors in 2024, compared to about R8 billionin 2023. This was achieved through accelerated book builds, scrip dividends, dividend reinvestment alternatives and rights offers.
The sector began to see an improved earnings outlook in the second half of 2024. Most Reits and property companies that delivered negative earnings growth in 2024 provided a marginally positive earnings growth outlook 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 (no breaches with the banks).
The sector disposed of many assets at or around book value (mainly to reduce debt levels) over the last two to three years, and according to MSCI data, we started to see the sector move from being a net seller of assets to a net buyer of assets (particularly in the retail space) in 2024.
The industrial sector, a perennial outperformer, is still predicted to do well. It is mainly warehousing and logistics/distribution (not manufacturing nowadays) and linked to the retail sector.
Lower interest rates will help boost consumer spending and the retail sector in general.
Township and rural retail are likely to continue trading better. This market segment has a big informal economy and benefits from government aid, such as social grants.
The office market is likely to see vacancies stabilise and improve. However, rental growth will only happen after a meaningful decline in vacancies. This will depend on the grade of properties as well as the location.
P-grade and A-grade properties are doing better than B- and C-grade properties.
The Cape Town office market has been strong. Since the pandemic, Cape Town offices have benefitted from strong growth in the Western Cape region, driven by semigration, tourism, and strong demand for space to set up call centres/BPOs (Business Process Outsourcing operatons) from global companies.
This has led to vacancies falling from a peak of just under 14 percent in 2022 to 6.5 percent at the end of 2024, according to the South African Property Owners Association (Sapoa) fourth quarter of 2024 Office Vacancy Survey. In comparison, Johannesburg office vacancies peaked at 19.5 percent in 2022 and stood at 16.7 percent at the end of last year.
Though very small in the listed property sector (with most rental assets largely unlisted), the residential sector will likely remain resilient, with very low vacancies and arrears as demand exceeds supply. The ability to absorb rent and utility increases remains an issue, but this could improve if the economy picks up. — Moneyweb
