SA REIT sector set for growth in 2025 amid improved sentiment and property fundamentals

• SA REIT sector is poised to deliver 8%-9% income returns in 2025, supported by strong property fundamentals and improving macroeconomic conditions.
• Nedbank forecasts modest property growth in 2025, with recovering commercial mortgages and improving commercial and residential property markets.
• Investor confidence is strong, bolstered by government reforms, interest rate cuts, and resilience in retail, industrial, and logistics sectors.

The South African Real Estate Investment Trust (REIT) sector is on track for impressive growth in 2025, propelled by rising investor sentiment, improving property fundamentals, and favourable economic factors like falling interest rates and increased consumer confidence. According to the SA REIT Association’s December and January Chart Books, the sector is set to deliver strong income returns of approximately 8%-9% in the coming year.

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Itumeleng Mothibeli, Chairperson of the SA REIT Research Committee and Managing Director of Vukile Property Fund Southern Africa, highlights the key drivers behind this optimism. “With the ongoing economic recovery, lower interest rates, and robust demand for commercial property—particularly in the retail, industrial, and logistics sectors—we foresee significant growth in the REIT sector this year. Our members continue to report improvements in property fundamentals and overall earnings quality.”

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Mothibeli also points to the resilience of township, urban, and rural malls, which are showing sustained demand. Furthermore, the logistics and warehousing space remains in high demand, reflecting the sector's strength.

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In the office market, vacancies are falling as tenants seek smaller, high-quality spaces equipped with modern features such as co-working spaces, wellness facilities, and smart technologies.

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REITs offer distinct defensive qualities that make them valuable for resilient investment portfolios. Their ability to protect against inflation, coupled with mandatory income distributions, liquidity, and diversification, makes them an attractive option for investors.

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The predictability of real estate leases and rental income gives REITs a defensive edge, allowing for more accurate earnings forecasts and lower volatility in share prices. REIT dividends, in particular, provide a hedge against inflation, as property values and rental rates often rise ahead of inflation.

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A critical factor contributing to the sector's optimism is the 75-basis point interest rate cut, which will help reduce borrowing and debt repayment costs for REITs. This will also drive up property values, boosting returns for investors and enhancing distribution payouts.

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Despite a challenging 2024 economy, Nedbank forecasts modest economic growth of 1.4% in 2025, with a slight uptick to 1.8% in 2026. Consumer spending, rising real incomes, lower inflation, and the two-pot retirement fund system will primarily drive this growth.

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However, commercial property mortgages are recovering, while home loans are slowing. The commercial and residential property sectors are expected to see moderate improvements as the year progresses.

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Nedbank Group Economist Nicky Weimar cautions that the global economic landscape remains unpredictable. Global inflation pressures and high US interest rates may lead to slower cuts in interest rates globally, while South Africa faces risks from a vulnerable rand and elevated global tensions.

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As a result, Nedbank anticipates only one more 25-basis point rate cut by July, with monetary policy easing unlikely to provide a significant boost to the property market. Instead, the property market's recovery will be supported by faster economic growth due to easing structural constraints and stronger consumer demand.

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Gary Garrett, Managing Executive of Property Finance at Nedbank CIB, notes that the second half of 2024 saw significant activity in the property sector, driven by the stability brought by the Government of National Unity (GNU) and tangible interest rate cuts. This momentum is expected to continue into 2025, provided the current economic conditions hold steady.

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In 2024, the listed property sector outperformed other asset classes, including equities and bonds, underscoring the positive sentiment and investor confidence driving growth in the sector.

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