South Africa's real estate investment trust (Reit) sector showed a recovery in February, rebounding by 1.2% after price declines seen in January.

This positive return outpaced the broader equity market, which remained flat at 0%, and the bond market, which posted a modest 0.1% gain, according to the South African (SA) Reit Association.

Despite this bounce-back, the sector has still posted a 2.5% decline year-to-date, underperforming both the equity and bond markets, SA Reit Association said on March 11.

According to Merchant West Investments listed property head portfolio manager Ian Anderson, who compiles the SA Reit Association’s monthly Chart Book, and Merchant West Investments portfolio manager Richard Henwood, the overall investment outlook for the sector remains positive for this year.

They say investors can expect a modest improvement in property fundamentals along with the possibility of lower interest rates. This outlook is supported by recent developments, such as a 25-basis point rate cut by the South African Reserve Bank, the formation of a Government of National Unity, a reduction in loadshedding and the introduction of the two-pot retirement system at the end of 2024.

With these factors in mind, the sector is projected to see average growth in distributable income of 3% to 5%, which is a positive turnaround after three years of stagnation.

However, Anderson and Henwood cautioned that the market may face increased volatility owing to global geopolitical tensions, particularly in relation to US President Donald Trump’s ongoing threats of higher tariffs, which could fuel inflation and impact economic growth globally.

During the reporting period, volatility remained elevated across global financial markets, with heightened concerns over geopolitical risks, SA Reit Association said.

“The potential for increased tariffs, especially on countries like China, Mexico, and Canada, could create inflationary pressures that complicate central bank efforts to cut interest rates further in 2025. In addition, weaker economic data from the US in late February raised concerns over the future growth prospects of the world’s largest economy,” the association said.

The postponement of the 2025 Budget speech, after Cabinet rejected proposed fiscal measures, including a two percentage point VAT increase, further contributed to uncertainty in the market.

Amid these challenges, individual companies in the Reit sector have shown varying degrees of success, SA Reit Association said.

For example, Burstone’s partnership with TPG Angelo Gordon saw the acquisition of logistics assets worth A$280-million in Australia, while Dipula Income Fund reported strong growth in retail tenant turnover and improvements in operating metrics. Equites Property Fund also remains optimistic, forecasting stable dividends and a reduction in its loan-to-value ratio.

Overall, while the South African Reit sector continues to face challenges, particularly from global uncertainties, the sector's fundamentals appear poised for gradual improvement, SA Reit Association said.