SA REITS on track for 8%-9% return after outperforming other asset classes last year
SA REITs (Real Estate Investment Trust) are likely to deliver an 8%-9% income return in 2025, after outperforming all other classes in 2024, said Merchant West Investments head of listed property and portfolio manager Ian Anderson.
He said the return would likely be a solid starting point for investors. Commenting on the December Chart Book, which he compiles, Anderson said on Monday: “With limited company-specific news, investors focused on broader macroeconomic issues likely to shape 2025, including concerns over tariffs, the Federal Reserve’s actions, and escalating geopolitical risks."
These factors weighed on investor sentiment, contributing to a decline in the South African equity market. While the bond market followed suit, the South African REIT sector defied the trend, rising by 1%.
For 2024, SA REITs delivered a 35% return, while the broader equity market gained 13% and the bond market returned 17%, he said.
“For the third consecutive year, REIT dividends remained steady, with a modest decline of 1.7% in 2024, reflecting the impact of higher borrowing costs and inflation-driven operating expenses,” he said.
Looking ahead, with global interest rates reaching their peak and expectations of improved occupancy and rental growth, dividends were anticipated to increase in 2025, contributing to the sector’s positive rerating.
Dividends contributed 11.5% to the strong 2024 return, complemented by a 24% price increase over the past year.
“While SA REITs still trade at discounts to their portfolios, the narrowing of these discounts since late 2023 reflects improved market confidence and stronger valuations, highlighting the sector's ongoing recovery,” he said.
Anderson said in a statement the pace and scale of interest rate cuts would be crucial for the sector in 2025, as lower rates can boost property valuations and income growth.
While South Africa’s political progress may bolster investor sentiment, potential US import tariffs under US President Donald Trump could stoke inflation, possibly causing the Fed to pause rate cuts, a scenario reflected in early US bond market signals.
“While the impact on South African REITs remains uncertain, global shifts in sentiment toward REITs could have local effects. However, SA REITs are set to deliver strong income returns of 8-9% in 2025, providing a solid foundation,” he said.
According to previous reports, factors that lifted REIT performances in South Africa last year included improved investor sentiment, boosted by the formation of the Government of National Unity, a stronger rand, an interest rate cut, and softer yields.
BUSINESS REPORT