The South African Real Estate Investment Trust (REIT) sector is poised for growth in 2025 driven by improving investor sentiment and property fundamentals, rising consumer confidence and falling interest rates.
According to the SA REIT Association December and January Chart Books, the sector is expected to deliver strong income returns of c.8%-9%.
Itumeleng Mothibeli, Chairperson of the SA REIT Research Committee and Managing Director of Vukile Property Fund Southern Africa commented:
“With the economic recovery, lower interest rates and robust demand for commercial property—particularly in the retail, industrial and logistics sectors – we anticipate growth in the REIT sector this year. Our members are consistently reporting improvements in property fundamentals and the quality of earnings.”
“Township, urban and rural malls will continue to show resilience, while demand for logistics and warehousing space will remain strong. In the office sector, vacancies are falling as demand increases for smaller, high-quality spaces with features like co-working spaces, wellness facilities and smart technology are a draw card for tenants.”
Mothibeli said the defensive qualities of South African REITs such as their inflation protection, mandatory income distributions, liquidity and diversification advantages make them essential for building resilient portfolios. The predictability of real estate leases and rental income gives REITs a defensive edge, enabling more accurate earnings forecasts and lower share price volatility. REIT dividends are known to hedge against inflation, as asset values and rental rates often rise ahead of inflation.
“The cumulative 75-basis point interest rate cut will support sector growth, reduce borrowing and debt repayment costs for REITs, increase property values and returns for investors and boost distributions,” said Mothibeli.
Despite the economy’s prolonged stagnation in 2024, Nedbank forecasts modest growth of 1.4% in 2025 and 1.8% in 2026. However, the bank expects fewer interest rates this year.
Nicky Weimar, Nedbank Group Economist commented: “Growth will be driven mainly by firmer consumer spending, supported by rising real incomes, subdued inflation, modestly lower interest rates and the withdrawals of contractional savings through the two-pot retirement fund system.
“Commercial property mortgages are recovering while home loans continue to slow. Nedbank expected both the commercial and residential property markets to improve moderately as the year progresses.”
Weimar stressed that the rapidly changing global landscape would probably deliver stickier global inflation and fewer US interest rate cuts, pointing to high-for-longer risk-free rates and continued US dollar strength. Against this backdrop, the South African Reserve Bank is likely to remain cautious.
Given upside risks to the local inflation outlook from a vulnerable rand, elevated US interest rates and the threat of global trade war, the current rate-cutting cycle is likely to be shallow. Nedbank forecasts only one more rate cut of 25 basis points in July. Consequently, monetary policy easing is unlikely to provide a significant boost to the property market. Instead, moderately faster economic growth in response to easing structural constraints and stronger consumer demand will support a reasonable recovery in the property market, said Weimar.
Gary Garrett, Managing Executive of Property Finance at Nedbank CIB commented: “We saw a significant increase in activity in the sector in the second half of 2024 which we attribute to the stability created by the Government of National Unity (GNU) as well as real evidence of interest rate cuts. We believe that this momentum will continue in 2025 should current economic conditions hold.”
The listed property sector outperformed other asset classes, including equities and bonds in 2024, further highlighting the positive sentiment and investor confidence in the sector, Garrett added.
