With interest rates easing slowly and continued positive sentiment, Redefine Properties is starting to see an upturn in the property market, and forecasts improved performance for the sector in the 2025 financial year.
The real estate investment trust (Reit), however, saw a decline in vacancies across its retail portfolio in its annual results for the year ended August, which it expects to shrink further.
CEO Andrew Konig said the environment had been favourable for the sector in the past few months, leading to renewed activity. “The post-election environment is among the factors that have led to this turn in the cycle, coupled with a stable electricity supply and the recent cut in interest rates. This makes us positive about improvements in the new financial year.”
The property sector was among the industries hardest hit by high interest rates and the depressed economic climate, affecting both commercial and residential markets.
In September, the Reserve Bank cut interest rates by 25 basis points for the first time since 2020, with another cut expected at its next meeting later this month.
South Africa has also not had load-shedding in the past seven months, which has boosted confidence.
While we expect negative reversion in office space to worsen in the short term, — possibly reaching -20% because we have a pretty big vacancy coming up in 2025, — we believe things are better than they used to be
— Leon Kok, Redefine Properties COO
In Redefine’s local portfolio, retail continued to see growth in occupancy — close to 2% for the period — and said active occupancy was at 95% compared with 93.6% in 2023.
COO Leon Kok said growth in the sector was driven by solid operating metrics.
While the property owner experienced an improvement in its retail space update, Kok said the office segment remained under pressure. In the period under review, office reversions increased, going from -12.1% to -13.9%.
“While we expect negative reversion in office space to worsen in the short term — possibly reaching -20% because we have a pretty big vacancy coming up in 2025 — we believe things are better than they used to be.”
Office occupancy has taken the longest to recover from the effects of the Covid pandemic when people were forced to work remotely, leading to the most vacancies since the 2008 global financial meltdown. However, the sector has experienced a slow recovery with the return to office work.
According to the South African Property Owners’ Association, office vacancies have been on a downward trend for nine consecutive quarters.
Despite improvements in some areas, Redefine recorded a decrease in its distributable income per share for the full year, dropping to 50.2c from 51.3c in the previous year. It has declared a 22.2c dividend.
Konig said the results signalled a turning point for the property sector, with Redefine expecting its distributable income per share to range between 50c and 53c in 2025. “Coming off a prolonged trough, we can look forward to an upward property cycle which will be gradual as the lingering effects of elevated interest rates are worked off, and spiralling tensions in the Middle East could disrupt the inflation glide path.”
Meanwhile, property developers in the residential sector said they were also beginning to see signs of recovery in the market, which could be boosted by a 50 basis point rate cut this month.
Balwin Properties said this was the ideal time to invest in residential property. “As interest rates decline, construction costs and property prices are likely to rise. Purchasing now allows buyers to secure properties at more affordable prices,” it said.
Lansdowne Property Group expects Johannesburg’s residential market to benefit from another interest rate cut. “Savvy investors can capitalise on this opportunity, especially if the rate cut cycle continues, bolstered by positive sentiment surrounding both the country and Johannesburg's macroeconomic outlook.”
Property analyst Keillen Ndlovu said while the interest rate cut has led to some relief, the negative effects of high interest rates would be felt for another year.
“It’s important to note that while interest rates are starting to fall, some SA-listed property sector debt, fixed at lower interest rates a few years back, is still being renewed at higher interest rates. That said, the floating rate debt immediately benefits from interest rate cuts,” he said.
Ndlovu said positive sentiment in the country around the GNU continued, which was good for economic growth, and presented an opportunity for the property sector.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.