The South African listed property sector has seen a significant rally, with a total return increase of nearly 24% for the year up to the end of August.
This sector is currently the top performer on the JSE, driven by anticipated interest rate cuts by the South African Reserve Bank (Sarb) in September and November, along with positive business sentiment surrounding the government of national unity (GNU) and a five-month period without load shedding by Eskom.
Confidence in the real estate investment trust (Reit) sector, which includes listed property stocks, and a more optimistic outlook for the broader commercial property sector were evident at the South African Property Owners Association (Sapoa) Convention at Sun City.
After falling out of favour in recent years, Reits have outperformed bonds, equities and cash this year — boosted by interest rate cut expectations and positive sentiment after the national election.
Reit CEOs and other property executives expressed optimism about the sector’s upward trend and the ‘rerating’ of listed property, with investors reinvesting in this asset class.
August was particularly strong for listed property, with the SA Property Index (Sapy) rising by 8.3%. Major JSE-listed Reits, such as Growthpoint, Redefine, Resilient, Vukile, and Hyprop, reached 52-week highs.
Fortress Real Estate Investments, no longer a Reit, also saw significant gains, along with several other listed property stocks.
According to the latest Listed Property Monthly Report by Anchor Stockbrokers, the Sapy’s over 8% increase in August pushed the index to a total return of 23.8% year-to-date by the end of August.
“The Sapy [+8.3%] outperformed other asset classes in August 2024 – Equities [+1.4%], Bonds [+2.4%], and Cash [+0.7],” said Anchor.
“Hyprop (HYP) and Growthpoint (GRT) were the top performers in August, delivering total returns of 18.4% and 14.3%, respectively,” it added.
Delta Property Fund was the weakest performing SA Reit, down 18.8% from a total return perspective for the month. However, Delta is down just over 6% from a pure share price perspective, and the stock is actually up around 30% year-to-date.
The South African Property Owners Association noted a positive trend in office vacancy rates, which improved to 14.2% by the end of Q2 2024, marking the eighth consecutive quarter of improvement.
Its survey included 2,703 completed office properties and 10 developments, covering 19.2 million sqm of gross lettable area.
Prime A and B-grade offices saw notable improvements, with Prime offices experiencing the most significant decline in vacancy rates to 7.8%.
However, C-grade offices saw a slight deterioration.
Rental growth rebounded in Q2, with overall office asking rentals increasing by 0.8%, although still below inflation. Development activity remains muted, stabilising the market.
Cape Town recorded the lowest vacancy rate at 6.3%, while Johannesburg had the highest at 16.9%. High pre-let rates of 85% in new developments indicate caution among developers.
Despite these positive indicators, the prevalence of troubled assets, especially in Sandton’s historic core and regional disparities, pose ongoing challenges. Stabilising the market while addressing these issues is crucial for sustained growth.
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