South Africa’s property sector is showing signs of improvement, with inflation-driven growth particularly evident in net rental income, according to Evan Robins, Property Fund Manager at Old Mutual Investment Group.
Speaking with Simon Brown
, Robins commented on the short-term bond-like behaviour of real estate investment trusts (Reits), while noting that future growth will depend on earnings.
He said that “the Covid damage in terms of rating has gone,” and the sector has returned to pre-exuberant levels seen in the mid-2010s.
However, to push growth beyond inflationary levels, Robins stressed the need for better economic drivers. “To really get more growth from here, we need the earnings to grow more than by just inflation. We need some of the opportunities to start coming forward,” he said.
Robins also pointed to potential drivers like lower interest rates and improved GDP growth to help boost earnings, although the road ahead remains challenging.
He noted, “property hopefully is back to good old-fashioned property, giving you inflation-like growth with some yield.”
One major challenge for the sector remains vacancy rates, especially in office spaces, which continue to feel the pressure of economic sluggishness.
However, office vacancies have been improving over the past nine quarters, and Robins sees this as an opportunity: “If we have growth and once those offices start filling, that’s money for nothing, because that drops straight to the bottom line.”
While rent reversions in the office sector are still negative, Robins noted signs of improvement: “We are starting to see sort of a year-on-year rental growth on some measures, finally picking up into positive territory.”
A key aspect of the current property landscape is that commercial portfolios are often valued below the cost of new builds. This, according to Robins, is a positive sign for the sector’s future, as economic growth could lead to rental tension and higher prices for existing stock.
“We are far from that at the moment. But that’s how property cycles work,” he said.
On a broader scale, Robins mentioned that many generalist funds, which had been underweight in property, are now playing catch-up after missing out on the recent surge in listed Reits.
“Property was a very unloved sector. It’s still not a loved sector, but the unloved part of it I think has dissipated to a certain extent.”
Despite ongoing challenges, Robins is optimistic about the sector’s trajectory, saying, “Things aren’t easy on the ground, but certainly there is an improvement, things picking up, stabilisation, and seeing positive numbers and actual real growth or at least inflation growth from the sector, certainly in terms of South African net rental income.”