South Africa's commercial property sector continues to face challenges in 2024, according to top executives.
Without significant reductions in interest rates by the central bank, earnings growth in the industry will remain constrained by high finance costs, they said.
The commercial property market in South Africa took a significant hit during the pandemic, with lockdown measures leading to office closures and reduced foot traffic in retail spaces. This led to rent deferrals by tenants, resulting in decreased income and profits for property companies.
Despite a partial recovery in share prices, property firms are grappling with a combination of oversupply of office space and increased funding costs due to elevated interest rates.
Estienne de Klerk, CEO of Growthpoint Properties South Africa, told Reuters on the sidelines of a property conference that while property fundamentals have shown signs of stabilising and improvement, the operating environment remains challenging.
However "it doesn't mean that it isn't tough out there," he said.
The South African Reserve Bank paused its interest rate hikes in July, marking the first break since November 2021.
Analysts anticipate a resumption of rate cuts as early as May this year, which could alleviate some pressure on the industry. However, a high-interest rate environment continues to exert downward pressure on property asset values.
Leon Kok, the chief operating officer at JSE-listed Real Estate Investment Trust (REIT) Redefine Properties, acknowledged that there are indications of a bottoming out in property performance.
However, he highlighted ongoing challenges including power outages, rising municipal costs, water scarcity, and security concerns as key risks that could impact the sector's recovery.
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