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SA REIT Association

Redefines’retail portfolio grows as trading conditions in SA improve

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Redefine Properties’ retail portfolio continues to deliver as trading conditions in South Africa improve

Johannesburg, 2 December 2024 – Redefine Properties (JSE: RDF), one of South Africa’s leading real-estate investment trusts (REIT), has noted an improvement in trading conditions in South Africa’s retail sector going into the 2024 holiday season. With positive trends in retail sales, rental renewal rates and visitor foot count, the momentum in the sector bodes well for South Africa’s future growth.

In August 2024, retail sales in South Africa increased year-on-year by 3.2%. This marked the sixth consecutive month of growth in retail activity and at a robust pace. Additionally, foot traffic in major shopping centres rose by 8.3% year-on-year during the second quarter of 2024, a positive trend that has continued since December 2021. The rent-to-turnover ratio, which is a measure of retailer’s cost of occupancy, is now at its best level in more than ten years.

Nashil Chotoki, Retail national asset manager at Redefine, attributed the growth in retail activity to non-discretionary spending, with food and value-focused retailers serving as the main industry drivers. “Within the Redefine portfolio, grocers contribute 64% of turnover growth. Therefore, a tenant mix of essential services and retailers aligned with value offerings that is relevant to the demographics of the catchment areas will be a key success factor for shopping centres. It is why Redefine will increase its exposure to this category to 40% of its GLA in the next financial year,” Chotoki explained. “Lower interest rates and improved consumer confidence will further drive retail sales growth into some of the discretionary retail categories, and, ensuring that the tenant mix of a shopping centre is aligned to this will create sustainable growth.”

These trends come on the heels of the release of Redefine’s annual results for the 2024 financial year (FY24). The REIT’s retail portfolio accounts for 45% of its South African property asset platform, with a carrying value of R28.3 billion (up from R24.6 billion in FY23). Redefine owns 59 retail properties nationwide, occupied by 2,807 tenants with an annual trading density of R34,700 per sqm. The portfolio’s rent-to-turnover ratio of 7.7% reflects sustainable revenue growth prospects across its retail formats.

Redefine also enjoys an active occupancy rate of 95%, which it expects to increase in FY25 due to healthy letting demand. Furthermore, with the help of tenant support programmes and data-driven insights, Redefine ensures tenants are placed in optimal macro-locations to enhance their trading performance. This has enabled Redefine to improve its rent reversion rate on renewal to 0.2% and achieve a renewal success rate of 88%. Our analysis goes way beyond shopper data and combines a variety of data to drive insights to make decisions that inform our strategy at an asset level.

“We have also found that upgrades to stores, particularly grocers, drive improvements in turnover through attracting new customers to shopping centres. That is why Redefine is working closely with national retailers to support this, culminating in 8,500 sqm worth of upgrades scheduled to commence in February 2025,” Chotoki added.

To further diversify income streams, Redefine has pursued alternative revenue opportunities through in-mall and exterior billboards, and electric vehicle charging infrastructure installed at eight sites. Sustainability remains a top priority, with solar photovoltaic plants generating 18% of the portfolio’s energy needs thanks to an installed capacity of 34,587 kWp. Expansion plans will add another 12,351 kWp in capacity.

“There are still challenges in our path, but what is certain is the resilience and promise that South Africa’s retail industry poses from both a consumer and business perspective. Through strategic planning and implementation, and by prioritising the needs of consumers and our tenants, we are fully tapping into the power of retail spaces as social and economic enablers,” Chotoki concluded.

Vukile’s first-half puts it firmly on track for full-year guidance

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Vukile’s excellent first-half puts it firmly on track for full-year guidance

Vukile Property Fund (JSE: VKE) has reported an impressive 6.0% increase in its interim cash dividend to 55.2cps for the six months to 30 September 2024. The consumer-focused retail real estate investment trust (REIT), distinguished by its sector specialisation and international diversification, has reported excellent half-year operational results. This strong performance positions it comfortably to meet its full-year guidance of growth in FFO per share of 2% to 4%, with a trajectory towards the upper end of its 4% to 6% DPS growth target.

Laurence Rapp, CEO of Vukile Property Fund, comments, “Our strong first-half performance delivered outstanding operating results and solid trading metrics across our property portfolios, which positions us well for continued growth. Vukile’s businesses in South Africa and Spain are intentionally structured for seamless success, driving the strategic and operational progress that we’re pleased to report.”

Vukile is a leader in consumer-focused shopping centres with total property assets of R40.1bn. Its commitment to customers shines through in its convenient, community-focused, needs-based retail centres. It is invested in a portfolio of 33 urban, commuter, township, and rural malls in South Africa. Through Vukile’s 99.5% held Spanish subsidiary Castellana Properties, it has a portfolio of 15 shopping centres in Spain and a portfolio of three newly acquired shopping centres in Portugal. Some 59% of Vukile’s assets are in the Iberian Peninsula, and almost 48% of its property net operating income is earned in Euros.

In South Africa, Vukile’s robust operating platform, coupled with a strengthening macroeconomic environment, has delivered outstanding results.

“With sentiment improving, loadshedding decreasing, consumer confidence rising, and interest rates falling, the sustained strong metrics produced by our successful operating platform enjoyed a welcome boost. We anticipate this momentum to persist into the second half and beyond,” notes Rapp.

Valued at R16bn, Vukile’s defensive, dominant South African portfolio delivered strong performance and growth, with like-for-like net operating income growth of 4.6% and a 3.7% increase in the value of its retail portfolio. Vacancies remain at an exceptionally low 1.9%, supported by active letting, with 85% of leases signed at better or the same rental level and 93% tenant retention success. The portfolio achieved impressive trading density growth of 4.2%, with Vukile’s shopper-first focus driving increased footfalls and sales. A key highlight is the portfolio’s decreased cost-to-income ratio, down to 15%, the lowest level in a decade.

Vukile’s solar PV rollout in South Africa has been tremendously successful, driving margin and propelling it towards carbon neutrality. During the six months, it added four PV plants with 4.9MWp of capacity to its existing 28 plants of 21.6MWp. It is also applying the same focus to water management and efficiency.

Adding value to its South African portfolio through acquisitions and developments, Vukile’s redevelopment of the recently acquired Mall of Umthatha is on of schedule, with completion and substantial letting expected by the first quarter of 2025. Vukile anticipates a minimum 10% yield on this acquisition. The reconfigured East Rand Mall in Boksburg is trading exceptionally well following the introduction of Checkers FreshX as its first-ever grocery anchor. The R141m Bedworth Centre upgrade in Vanderbijlpark is progressing rapidly, with both new anchor tenants, Boxer and Shoprite, opening in time for the festive season. The development of Thavhani Retail Park in Thohoyandou, Limpopo, where Vukile acquired a 33% stake for R101m on an 8.6% yield, has broken ground. It is located adjacent to Vukile’s very successful Thavhani Mall asset.

Vukile remains keen to invest in South Africa. “We are actively exploring opportunities and are currently in the early stages of evaluating several potential deals in the market,” confirms Rapp.

Vukile’s well-established investment in Spain has cemented Castellana’s position as a market leader, capitalising on the advantages of the country’s status as a European growth powerhouse. The on-the-ground presence of Castellana not only ensures first-hand market knowledge but operates as a local business, which has proven a distinct advantage in accessing opportunities.

With Spain’s economy leading the Eurozone and its financially healthy consumers driving growth, Castellana’s consistent consumer-focused model has excelled, surpassing market benchmarks and outshining peers with high footfall and sales.

The Spanish portfolio remains fully let, with marginal vacancies of around 1% and 95% of space let to blue-chip international and national tenants. It achieved like-for-like rental growth of 2.1% and exceptionally high positive rental reversions of 45.5%. The portfolio has the market’s lowest occupancy-cost ratio, 9.5%, providing further room for future rental growth.

Vukile is well-known for its astute capital allocation. Post-period in October, it accepted the offer to sell its entire 28.8% stake in Lar Espana for €200 million, generating a capital profit of some €70 million and an IRR exceeding 30% in Euros. The proceeds will be redeployed into physical assets in well-advanced transactions currently being evaluated

As previously disclosed, Castellana remains in exclusive discussions to acquire the largest shopping centre in Spain’s Valencia province, Bonaire Shopping Centre, from multinational retail REIT Unibail-Rodamco-Westfield. The transaction’s closing has been extended due to the tragic floods in Spain, pending a full damage assessment and remediation timeline for the flood-impacted shopping centre.

Rapp notes that a key highlight executed post the reporting period was Castellana’s strategic entry into Portugal, a compelling new market, which has expanded its Iberian investment footprint. “The move capitalises on Portugal’s strong economic growth and fragmented retail property sector ripe for consolidation, mirroring opportunities seized in Spain.”

With its investment in a high-quality, blue-chip-tenanted portfolio of three Portuguese shopping centres valued at €176.5m, the expected 10%-plus cash-on-cash yield in Euros underscores the market’s potential for value creation. Castellana’s on-the-ground expertise positions it to add substantial value to the Portuguese assets while growing in this market, with liquidity in place and further transactions under consideration.

Vukile’s robust balance sheet and disciplined capital allocation are enduring merits for this REIT. Its balance sheet remains exceptionally strong, with a reduced LTV of 35%, an increased ICR of 2.5-times, and R6.4 billion in liquidity, including R5.1 billion of cash on hand and R1.3 billion undrawn facilities.

Vukile remains one of the most highly rated credits in the property sector with its AA(za) corporate rating reaffirmed by GCR, with an upgraded positive outlook. Fitch also upgraded Castellana’s Long-term Issuer Rating of BBB- with a positive outlook. These high international investment-grade credit ratings underscore excellent access to debt and equity capital markets. Vukile raised approximately R2bn during the period from new share issuances.

“We are tremendously appreciative of the support shown for our capital allocation strategy, as evidenced in our equity and debt capital raises. Strong capital allocation lies at the heart of our expansion strategy, and we are dedicated to dealmaking discipline in seeking new opportunities that are strategically aligned and financially accretive in our core markets of Spain, Portugal and South Africa,” says Rapp.

He concludes, “Vukile delivered excellent first-half operating performance and has laid a firm foundation for future growth. We remain committed to our scalable consumer-led model to create value for all our stakeholders.”

Growthpoint’s major R800m development to ease KZN’s student accommodation

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Thrive Student Living to ease KZN’s student accommodation squeeze with 2,400 new beds in major R800m Growthpoint development

Thrive Student Living has started its largest student accommodation development yet. Representing a significant R800 million investment, the new purpose-built student accommodation development has commenced immediately adjacent to the main gate of the Howard College Campus of University of KwaZulu-Natal in Berea, eThekwini.

Undertaken by Growthpoint Properties’ specialist development division, the project will add 2,400 student beds in the region, which research shows has the biggest shortage of student beds in South Africa.

“Proprietary research commissioned by our team revealed that KZN remains undersupplied with student beds,” says Kobus Blom, Growthpoint’s KwaZulu-Natal Regional Development Manager. “The province has significant demand, and most students live in environments that are not conducive to student outcomes.”

In response to this need, Growthpoint has commenced the two-year development programme for the new building which is set to welcome its first students in January 2027 under the Thrive Student Living banner.

The new development was celebrated with a sod-turning ceremony, attended by the Honourable Mayor of eThekwini, Cllr Cyril Xaba, and the Chief Financial Officer of eThekwini, Dr Sandile Mnguni, as well as representatives of Thrive Student Living and the Growthpoint development team and its partners. This massive investment puts into action Growthpoint’s commitment made at the recent KwaZulu-Natal Investment Conference for R800 million of investment in the province over two years, which it is executing through this development for Thrive Student Living.

Amogelang Mocumi, Fund Manager of Growthpoint Student Accommodation Holdings, which operates under the Thrive Student Living brand, expresses the company’s commitment, “By prioritising student accommodation that supports better education outcomes, we are not only enriching lives but supporting employment and fuelling a more competitive economy. This investment highlights the transformative power of strong partnerships and underscores what is possible through collaborative efforts. To grow these achievements, we need a unified approach across all levels of government, together with private sector investment to support economic growth. Together, we can build a brighter future for young people and our nation.”

Growthpoint develops purpose-built student accommodation located and designed around students to help them succeed and make the most of their university experience.

In line with Thrive Student Living’s ethos of fashioning vibrant campus communities, each unique in its architecture and design to reflect and foster its specific community, it has shaped a beautiful contemporary design for the new 12-storey building incorporating the red face-brick that is an architectural signature in the Berea area.

The design also includes all the added amenities that Thrive Student Living accommodation offers, like study areas and games rooms, gyms and IT rooms, and backup power and water. Uniquely, it has also been designed to include a small element of ground-floor retail tailored towards daily convenience, which will serve building residents, other students, and the immediate community, as there is nothing else in the area fulfilling this need.

The development will also benefit from Growthpoint’s recognised green building leadership, creating healthy, sustainable environments and operating with a social consciousness that adds value to communities. Growthpoint’s developments boost job and economic opportunities, in addition to having long-term positive socioeconomic impacts of education support.

While this is its first purpose-built student accommodation project in KZN,Growthpoint has a proud track record of leading purpose-built student accommodation developments in the university cities of Johannesburg, Pretoria and Cape Town.

It was recently named the winner of the SAPOA Property Development Award for Innovative Excellence in Student Accommodation for its development of Thrive @ Horizon Heights, also for Thrive Student Living, at the bustling heart of Johannesburg’s student community. Thrive @ Horizon Heights opened for the 2024 academic year and was well let, proving popular with those from the nearby University of Johannesburg as well as the University of the Witwatersrand.

The Growthpoint development team is currently completing two new properties for Thrive Student Living for the 2025 academic year: Thrive @ Crescent Studios, a R300m 900-bed property located in Braamfontein, and Thrive @ Arteria Parktown, a R200m 500-bed located in Parktown, both ideally positioned for Wits University students.

Piling commenced at the eThekwini site in the first week of October 2024 in preparation for the main building contractor, which moved onto site today (Monday 18 November 2024), to begin construction.

Emira reports robust half-year results and reshapes its portfolio 

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Emira Property Fund (JSE: EMI) reported strategic delivery, diversification-enhancing acquisitions, active capital recycling, and strong operational and balance sheet metrics for its six-month interim period ended 30 September 2024. The company’s interim distributable income per share increased by 6.9%. It declared a 1.1% higher cash-backed interim dividend per share of 62.39c. Emira’s net asset value per share increased by 12.3% to 1,945.50cps during the six months, driven by rising property valuations and the fair value equity gain from Emira’s maiden investment in Poland.

Geoff Jennett, CEO of Emira Property Fund, attributes the positive performance to strengthening operational metrics, active asset recycling, and strategic deal-making, reflected in its reshaped portfolio. He adds that Emira is on track to deliver on its objectives for the full year, which it expects to result in marginally higher distributable income compared to that achieved for its past financial year.

Jennett reports, “Emira’s local portfolio outperformed, our US investments are comfortably on track, and we completed the first tranche of our investment into DL Invest, bolstering our diversification by tapping into Poland’s burgeoning economy with its unique growth drivers and opportunities.”

Emira invested €55,5 million for an initial effective 25% equity stake in DL Invest Group, a Luxembourg-headquartered property company developing logistics centres, mixed-use/office complexes and retail parks, valuing its assets at €730 million and NAV at €278 million pre-investment.

Emira has the option to expand its position in DL Invest Group by investing an additional €44,5 million, which will   increase its equity holding to 45%. This second tranche subscription option must be exercised by 31 January 2025 and requires shareholder approval to pursue. Castleview Property Fund, which holds around 58% of Emira’s issued shares, has given its irrevocable vote in favour of exercising the option, and shareholders can expect to receive a circular regarding the option.

DL Invest Group has a 17-year track record in Polish commercial real estate, with a €730 million portfolio focused mainly on logistics. Emira’s investment will fund DL Invest Group’s logistics development pipeline, aiming to create a €1 billion business. The partnership aligns with its co-investment strategy with in-country specialists. Emira will participate actively, with board representation, and has committed to an initial five to six-year investment term.

Funding for the first tranche of investment came from Emira’s balance sheet and recent disposals. Its non-core commercial and residential property sales transferred, completed and agreed upon during the period totalled R2.6bn. Emira’s strategic capital recycling strengthens liquidity by disposing of non-core assets that can be sold at fuller value. This creates capacity to invest in undervalued opportunities with stronger growth potential.

Emira’s balance sheet is healthy, with an adequate 2.3x interest cover ratio and a loan-to-value ratio that declined from 42.4% to 42.0% over the six months and is expected to decrease further as property disposals transfer and a portion of the proceeds are deployed to reduce debt. It reported unutilised debt facilities of R370m and cash on hand of R112.8m at half-year which will increase as proceeds from disposals are realised. Emira has a strong and diversified financial foundation, with support from all major South African banks and the proven ability to access the debt capital markets. In October, GCR affirmed its corporate long-term credit rating of A(ZA) and corporate short-term rating of A1(ZA), with a stable outlook.

The first tranche of its latest transaction has immediately increased Emira’s international investments to 26.8% of its portfolio — with 15.5% in the US and 11.3% in Poland — while 73% remains in South Africa, shifting it towards lower-risk, more attractive diversification with enhanced stability and appeal. The second tranche DL Invest Group option creates the potential for this to become nearly 37% offshore.

Emira is a real estate investment trust (REIT) with a diversified portfolio balanced to deliver stability and sustainability through different cycles. This risk-mitigating strategy includes a mix of domestic and international assets in direct holdings and indirect investments with specialist co-investors. Emira’s direct South African portfolio of 84 properties worth R12.1bn is diversified across commercial property sectors and residential rental property. Emira’s exposure to the United States is with US-based partner The Rainier Companies. Emira holds equity interests, with unanimous voting rights, in 12 dominant, value-oriented grocery-anchored power centres.

The local portfolio performed well, surpassing most key targets. SA commercial vacancies are already low and tightened to 3.9% from 4.1%. The portfolio saw an increase in like-for-like valuation of 4.7%, reflecting enhanced metrics across all three sectors and improved business sentiment. Residential occupancy remained strong at 96.7% and, similarly, maintained like-for-like valuation levels. Both sets of metrics signal a property portfolio that is attractive, competitive, adaptable and designed for lasting performance.

Emira’s commercial portfolio by value is split between urban retail (43%), office (25%) and industrial (15%) of the directly held SA portfolio. All sector vacancies are below the applicable benchmarks, and tenant retention increased from 81% to 83% by revenue during the period, reinforcing Emira’s effective leasing strategies. Its 15-property directly held retail portfolio of primarily grocery-anchored neighbourhood centres catering to their communities is trading well with improved metrics, including low vacancies of 4.2%. Despite the slump in office sector fundamentals, Emira’s portfolio of 20 mainly P- and A-grade office properties saw office vacancies improve into single-digit territory, from 10.9% to 9.4%. Emira’s diversified industrial portfolio of 28 properties enjoyed strong demand and delivered a sustained defensive performance at near full occupancy, with vacancies stable at 0.7%.

Residential rental assets comprise 21 properties, or 17% of Emira’s directly held SA portfolio by value, comprised of The Bolton in Rosebank, Johannesburg, and the 20 quality, affordable suburban units of Transcend Residential Property Fund, Emira’s wholly-owned specialist residential company. The portfolio of 3,588 units is split between Gauteng’s (90% by value) and Cape Town’s (10% by value) high-demand areas. The portfolio is achieving rental growth, with sustained demand for accommodation.

Overall, the commercial portfolio benefited from R119.8m in tactical upgrades, including various sustainability-driven initiatives, reconfigurations and refurbishments. Emira also invested R8.6m into its residential portfolio.

Emira collaborates with industry bodies to address South Africa’s deteriorating municipal infrastructure, which is a concern due to underinvestment. Inconsistent utility supply and rising costs hinder operational efficiency. To combat this, Emira is driving sustainability through fast-tracked solar power, water-saving initiatives, and backup systems. “We’re committed to energy-efficient buildings and are passionate about biodiversity. Our ESG strategy makes Emira properties the excellent choice for businesses,” notes Jennett.

Jennett points to easing inflation, declining interest rates, and growing political stability in South Africa, transforming the outlook for local real estate. “With costs stabilising for consumers and businesses alike, spending is set to rise, boosting property demand. More favourable interest rates should bolster investor confidence and reshape tenant demand patterns. Decreased loadshedding has further strengthened business confidence, prompting firms to invest in longer-term plans. Improved sentiment post-election bodes well for stronger long-term returns from the property sector, but short-term growth will be tempered as the market absorbs elevated vacancies and while economic headwinds subside. While it will take time for these positive factors to yield measurable results, they position Emira well to continue delivering strong returns to investors.”

Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.56bn (USD147.1m). The US economy remains on a steady and stable growth trajectory, with GDP up 3% for Q2 2024 and 2.8% for Q3 2024 coupled with low unemployment, easing inflation and a 50bps cut to interest rates in September and another 25bps trim in November. While US elections introduced some uncertainty to the economy, stability should return with clarity of the new government’s priorities and policy. This environment continues to support Emira’s investment in US open-air centres focused on popular value and needs-based retail in robust markets.

Robustly resilient property fundamentals and high-quality tenants underpinned the US portfolio’s low vacancy rate of 3.5% and combined portfolio WALE of 4.5 years. It delivered a solid performance, adding R120.1m to Emira’s distributable income.

Jennett concludes, “Emira’s strategic pivot is in full swing as we target opportunities with robust growth potential tightly aligned with our long-term goals. These solid half-year results put us firmly on track for a marginal increase in distributable income for FY25, reinforcing Emira’s consistent record of reliable performance.”

South African REITs Sustainability Disclosure Guide launched

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The South African Real Estate Investment Trust Association (SA REIT) Association in partnership with Nedbank Corporate and Investment Banking (CIB) have launched the SAREIT Sustainability Disclosure Guide, aimed at establishing sustainability standards and best practice benchmarks for the real estate sector in South Africa.

This guide is a valuable resource for SA REIT members and property organisations starting their sustainability reporting. It provides key information to improve their reports and outlines a framework of recommendations for sustainability and climate-related disclosures, aligning with international standards in the South African property sector and the global sustainability landscape.

Joanne Solomon, Chief Executive Officer of SA REIT Association comments:

“As industry partners, we are proud to launch the inaugural SA REIT Sustainability Disclosure Guide, marking a significant advancement in fostering a unified approach to sustainability within the South African real estate sector.

The property sector plays a crucial role in tackling environmental, social, and governance (ESG) challenges. Our goal is to guide the industry toward a future where sustainable practices are seamlessly integrated into business strategies, enhancing both resilience and value.”

Sustainability has become a key priority for businesses, with capital markets increasingly evaluating performance based on ESG metrics in their investment decisions. This trend is supported by compelling evidence linking strong ESG performance to an organisation’s ability to secure long-term competitive and financial advantages.

Furthermore, sustainability reporting offers investors valuable insights into a company’s long-term viability, risk management, and growth potential. This transparency empowers investors to make informed decisions that align with their values and financial goals.

“Meaningful sustainability disclosure is essential for attracting financial capital, enhancing accountability, improving business performance, and fostering a resilient property sector.”

The guide aims to enhance the reliability, consistency, and comparability of ESG data among South African REITs, promoting objectivity, facilitating analysis, improving valuations, supporting benchmarking, and encouraging cross-organisational comparisons, said Solomon.

Gary Garrett, Managing Executive of Property Finance: Nedbank CIB commented:

“As a purpose led organisation, we aspire to be a key participant in promoting a more sustainable future for the real estate sector. We are intentional about sustainability and about contributing positively to the communities in which we operate.”

The SA REIT Sustainability Disclosure Guide highlights the significance of accurate and reliable ESG reporting, aligning with global best practices and standards. These include the Global Reporting Initiative, the Sustainability Accounting Standards Board, and the Task Force on Climate-related Financial Disclosures.

Garrett said the practices outlined in the guide foster transparency, enhance stakeholder trust, and promote sustainable growth in the property market.

Solomon said the guide aligns with the voluntary JSE Sustainability and Climate Change Disclosure Guidance of 2022 and global best practices, specifically for the South African property sector. SA REIT recommends using this guide alongside the JSE guidance which serves as its foundation.

Many recommendations in these frameworks are not industry-specific and often overlook the unique challenges faced by property owners in South Africa. For instance, an international decarbonisation disclosure framework may not account for local municipality restrictions on electricity wheeling or the lengthy process of obtaining water-use licenses.

“This guide will assist issuers and investors in the South African property sector by standardising key sustainability concepts and their reporting. While it serves as a valuable voluntary tool, its application is not mandatory,” she added.

Download the SAREIT Sustainability Disclosure Guide here or email info@sareit.co.za for more information.

Value in the current oversupply of commercial property space

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At these levels, there’s value in the current oversupply of commercial property space 

For the past seven years, South Africa’s listed property sector has been in the doldrums. A toxic cocktail of economic weakness leading to rising vacancies, the devastating impact of COVID-19 lockdowns and higher interest rates, and the added burden of load-shedding and various other costly utility challenges, created a perfect storm. It brought cruel headwinds for property owners that have left investors wary. But the winds of change are blowing.

Listed property share prices are starting to show an increased value proposition and this will inevitably lead into the physical commercial property market.

So far, in 2024, real estate investment trust REIT returns are up in excess of 50%.

Nowhere are signs of a real estate turnaround more evident than in the Western Cape, where offices that sat vacant just 18 months ago are now full.

The semigration trend to the province is part of this. But it’s not the whole story. Improving sentiment post the Government of National Unity (GNU), less loadshedding easing strain and costs, and the first reduction in interest rates, together with the expectation that they will fall further, are country-wide factors all contributing to a surge in sentiment and confidence.

In addition, most corporates are now insisting on a return to in-office work, resulting in a greater need for office space. This spells opportunity – particularly in Gauteng, which is the hub of South Africa’s economic engine, and where vacancies are still prevalent.

There’s more value to be unlocked

Successful investors look further than headlines to find value. And, as the economy starts to stir, savvy investors can scent opportunity.

Property is inherently cyclical, and it’s starting to pick up the first gusts of coming tailwinds. Yes, the sector still has an oversupply to digest, but there’s value in it if acquired at the current low pricing levels. As offices fill up and economic sentiment improves, their values will increase commensurately.

With the anticipation of reduced vacancy levels, property investment becomes more attractive, and the prospect of new developments becomes increasingly feasible, drawing investors and speculators back into the market. It’s a potentially tantalising prospect after years of stagnation.

Disciplined, sustainable growth

In fact, the future prospect is more alluring than it has been for a long time. This is even true in the local REIT sector, where we still see share prices that significantly undervalue their businesses, but with the incoming tailwinds, we will inevitably see an acceleration towards the recovery on the horizon.

When market sentiment overshoots fundamentals, long term investors like Emira stay focused on what makes business sense, not getting caught up in the hype –  acquiring at below value in places where economics are suppressed and disposing when values are full. It all comes down to strategic capital allocation and responsible growth. When markets show extreme dislocations from value, that is the time to to move and take advantage of what will eventually show as long-term value creation.

Demonstrating its agility and business sense, Emira’s recently sold off its portfolio in sought-after Cape Town at what it perceives as fuller value. This strategically aligned move freed-up capital to be deployed in Poland, where returns are extremely enticing (undervalued with strong economic growth prospects) and where we had identified the right entry point (co-invested into equity with local partners with growth aspirations) – a decision that makes business sense for Emira in its pursuit of diversification and value creation.

The stage is set for a long-awaited turnaround

Rising REIT returns, reducing vacancies, and returning office appetite all point to a sector in recovery mode. The property cycle is turning, and those with a keen eye for value are already taking notice.

The South African property sector still has meaningful operational and infrastructure hurdles to overcome, but the winds of change are starting to blow and, with a nuanced understanding of the sector and a discerning eye for emerging potential, there’s substantial value in listed property stocks right now with further value to be found in the future

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