January 13 2025 12:10
Ian Anderson, head of listed property and portfolio manager at Merchant West Investments and
compiler of the SA Reit (Real Estate Investment Trust) Association monthly Chart Book, said on Monday that he was forecasting that SA Reits would deliver 8-9% income returns in 2025, which would be a solid starting point for investors.
“With limited company-specific news, investors have focused on broader macroeconomic issues likely to shape 2025, including concerns over tariffs, the Federal Reserve’s actions and escalating geopolitical risks,” Anderson said.
“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 outperformed all other asset classes, delivering 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.
Looking ahead, with global interest rates reaching their peak and expectations of improved
occupancy and rental growth, dividends are anticipated to increase in 2025, contributing to the
sector’s positive rerating.
Dividends contributed 11.5% to the strong 2024 return, complemented by a notable 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.
Anderson said the pace and scale of interest rate cuts will 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 tariffs under incoming 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, truly, ‘a bird in the hand is worth two in the bush’,” he said.
alistair@propertyflash.co.za
