Despite economic headwinds, including high interest rates and the impact of load shedding, the domestic property market exhibited resilience in 2023, as per data from the annual MSCI South Africa Property Index.
In 2023, the South African Property Index achieved a total return of 8.7%, slightly lower than the previous year's 9.3%, writes Mahir Hamdulay, equity research analyst at Absa CIB.
This performance was driven by an income return of 8.3% and a capital return of 0.4%. However, net operating income (NOI) growth of 4.5% fell behind inflation due to elevated cost pressures related to load shedding and property tax hikes.
Despite these challenges, Hamdulay said that key operating metrics such as vacancies and reversions showed sustained improvement, signalling resilience in a challenging operating environment.
Globally, market sentiment in 2023 was volatile, influenced by fluctuating views on inflation, interest rates, and concerns over potential recessions. Geopolitical tensions disrupted supply chains, adding to inflationary pressures and dampening consumer and business confidence, Hamdulay said.
Towards the end of 2023, inflation began to ease, and expectations of global interest rate cuts bolstered sentiment. The South African listed property sector, sensitive to interest rate changes, rallied in the last quarter of the year, driven by expectations of rate cuts.
The FTSE/JSE All Property Index (ALPI) and the FTSE/JSE SA Listed Property Index (Sapy) achieved total returns of 10.7% and 10.1% respectively for CY23, outperforming SA Equities, SA Bonds, and SA Cash.
The retail sector, representing 59% of the MSCI index, delivered a robust performance, with a total return of 9.7%. However, year-on-year trading density growth moderated to 5.7% in Q4 2023, reflecting subdued consumer spending amid higher debt service costs and limited wage growth, said Hamdulay.
The industrial sector, comprising 12% of the MSCI index, maintained its outperformance, achieving a return of 11.2%. Low vacancies and tenant-driven developments, particularly in logistics, contributed to its positive performance.
The office sector, representing 20% of the MSCI index, lagged behind other sub-sectors with a total return of 4.8%. While office occupancies improved, vacancy rates remained elevated, especially in Johannesburg.
Hamdulay said the outlook for the property sector hinges on various factors, including the outcome of elections, timing and extent of interest rate cuts, and macroeconomic conditions.
Despite challenges, the sector remains well-positioned, with a sustained positive performance contingent on navigating these uncertainties, he said.
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