The property sector in South Africa is beginning to pick up the first gusts of coming tailwinds, following seven years of being in the doldrums, says Emira Property Fund chief executive officer, Geoff Jennett.
He said 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."
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, according to Jennett.
"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.
"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," said Jennett.
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.
Jennett noted that even the local REIT sector, where we still see share prices that significantly undervalue their businesses, is seeing some recovery.
"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."
He said that 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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