S.Africa’s REITs rebound to four-year high

The property sector in South Africa has experienced a significant turnaround, with the sector emerging as the best performing block on the JSE this year, outperforming returns from bonds and cash. Amid expectations of further interest rate cuts, industry experts are optimistic about the potential for continued rally in share prices within the property market. John Jack, the CEO of Galetti Corporate Real Estate, highlighted the positive outlook for the sector, citing Naeem Tali's report which predicts a 13 to 15 percent annual growth in listed property counters. This growth includes both the increase in property value and dividend yield, reflecting a strong performance thus far in the year. The resurgence in the property market comes after a period of derating pre-COVID, where net asset values plummeted, vacancies surged, and rental prices declined. However, with the recent interest rate cuts and improving business confidence in South Africa, the property sector has seen a re-rating. While current valuations are still below pre-pandemic levels, stocks like Fortress have witnessed significant recovery with a 60 percent increase in share price. One of the key drivers of the property market's revival has been the return to work initiative, with major companies like Amazon announcing plans to bring employees back to the office from January next year. This shift has led to a decrease in office vacancies, especially in prime locations like Santon, where growth point has a strong office portfolio. Despite concerns about the impact of job cuts on office space demand, Jack remains optimistic about the sector's resilience. He noted that while certain industries may require less office space due to optimization efforts during the pandemic, other sectors like call centers in Cape Town and Natal are experiencing a surge in demand, leading to a shortage of office space. Growthpoint, a key player in the industry, is embarking on ambitious developments like the Granger Bay project. However, rising construction costs pose a challenge in achieving optimal returns on these investments. The company's strategic allocation of capital towards growth projects in high-demand areas like Cape Town aims to capitalize on the region's potential for growth. The discussion also touched on the government's role as a major tenant in the property sector. Jack highlighted the potential for a turnaround in government leases under the leadership of Dean MacPherson, Minister of Public Works. The government's efforts to streamline lease agreements and improve payment processes could transform the perception of government-leased buildings as risky investments, opening up new opportunities in the sector. As the property sector in South Africa continues to show promising signs of recovery and growth, investors and industry players are keeping a close watch on developments within the market. With positive indicators such as improving business confidence, decreasing interest rates, and increasing demand for office spaces, the future looks bright for South Africa's real estate investment trusts (REITs).