South Africa’s real estate investment trusts (Reits) are expected to deliver 8% to 9% income returns in 2025 – a solid starting point for investors, says financial solutions provider Merchant West Investments listed property head and portfolio manager and compiler of the South African Real Estate Investment Trust Association (SA REIT) monthly Chart Book Ian Anderson.

He notes that, with limited company-specific news, investors are focused on broader macroeconomic issues likely to shape this year, including concerns over tariffs, the US Federal Reserve's actions and escalating geopolitical risks.

He says these factors weighed on investor sentiment, contributing to a decline in the South African equity market.

“While the bond market followed suit, the South African Reit sector defied the trend, rising by 1%. For 2024, the country’s Reits outperformed all other asset classes, delivering a 35% return, while the broader equity market gained 13% and the bond market returned 17%.”

For the third consecutive year, Anderson explains that Reit dividends remained steady, with a modest decline of 1.7% in 2024, reflecting the impact of higher borrowing costs and inflation-driven operating expenses.

Looking ahead, with global interest rates reaching their peak and expectations of improved occupancy and rental growth, he says dividends are anticipated to increase this year, contributing to the sector's positive rerating.

Dividends contributed 11.5% to the strong 2024 return, complemented by a notable 24% price increase over the past year.

While the country’s Reits still trade at discounts to their portfolios, the narrowing of these discounts since late 2023 reflects improved market confidence and stronger valuations, highlighting the sector's ongoing recovery.

Anderson says the pace and scale of interest rate cuts will be crucial for the sector this year, as lower rates can boost property valuations and income growth.

While South Africa’s political progress may bolster investor sentiment, potential tariffs under US President-elect Donald Trump could stoke inflation, possibly causing the Fed to pause rate cuts, a scenario reflected in early US bond market signals, he adds.

“While the impact on South African Reits remains uncertain, global shifts in sentiment toward Reits could have local effects. However, South African Reits are set to deliver strong income returns of 8% to 9% in 2025, providing a solid foundation – truly, 'a bird in the hand is worth two in the bush'.”