BRYAN SILKE: Listed property offers chance to boost growth

The SA listed property sector enters 2025 with a mix of cautious optimism and lingering challenges.

Until the sector’s resurgence last year, real estate investment trusts (Reits) had endured a turbulent decade buffeted by low economic growth, high unemployment and an interest rate cycle that pushed borrowing costs to historic highs.

Yet, as sector analysts have recently suggested, beneath the challenges lies untapped potential, particularly in logistics and retail. Recoveries in the office market — albeit uneven — could also bolster the sector if managed astutely.

A strong GDP is the lifeblood of a thriving property sector. However, in SA GDP growth has hovered stubbornly below 2% for years, eroding consumer confidence and investment appetite. For listed property, which depends heavily on robust economic activity to fuel demand, these challenges have been crippling. 

But how can SA businesses proactively solve these legacy issues? Mexico and India have for instance implemented targeted structural reforms — including government-led focus on infrastructure development and job creation aimed at reducing inflation — that have revitalised their respective property sectors.

Both cases highlight that listed property thrives when macroeconomic conditions improve. Lower inflation, rising employment and consistent GDP growth create a fertile ground for the sector. 

SA’s policymakers should take note. Recent inflation moderation and the potential for a lower interest rate cycle present an opportunity to kick-start growth. If complemented by structural reforms and targeted incentives, the property sector could emerge as a key driver of economic recovery. 

Mexico’s industrial real estate surged alongside its manufacturing boom, while India’s commercial and logistics sectors have been buoyed by digital expansion and government-backed development projects. SA must draw inspiration from such efforts, addressing unemployment and economic stagnation to unlock growth in its property sector. 

A catalyst for recovery in 2025 is the prospect of a lower interest rate cycle. Until recently, the SA Reserve Bank’s sustained rate hikes, while necessary to combat inflation, had burdened Reits with high debt costs, resulting in many instances in reduced dividend payouts and suppressed share prices. However, with inflation moderating globally, the potential for rate cuts presents a golden opportunity. 

Lower rates reduce the cost of debt, enabling Reits to refinance at favourable terms, which directly enhances profitability and increases the sector’s attractiveness to local and international investors. Declining rates often signal improved economic confidence, which can spur demand across property subsectors. Retailers, for example, may use the opportunity to expand footprints, while logistics operators could scale operations to meet growing e-commerce demand. 

This dynamic has played out in other markets: for instance, Brazil saw its property sector flourish in the mid-2010s after aggressive rate cuts spurred investment. For SA Reits, strategic refinancing and the ability to leverage lower rates for acquisitions could enhance earnings and attract general equity investors back to the sector. 

SA Reits must focus on emerging growth areas to capitalise on these potentially favourable conditions. Logistics, driven by e-commerce and supply chain realignment, presents an exciting opportunity. Our country’s strategic location, coupled with burgeoning intra-African trade, positions it as a logistics hub. Modern warehouses and distribution centres are in demand, and Reits that prioritise such assets stand to be the big winners. 

Retail, long a stalwart of the sector, continues to adapt to changing consumer habits with mixed-use developments and last-mile delivery hubs gaining traction. Community shopping centres and retail parks catering to middle-income consumers continue to perform well. These assets, often anchored by grocery tenants, provide stability in uncertain times. For larger malls, a strategic pivot to experiential retail — blending shopping with entertainment — could reignite foot traffic and revenue. 

The office market’s recovery remains uneven. Hybrid work trends have reduced demand for traditional office space, yet opportunities persist. High-quality, green-certified buildings in prime locations are sought after, particularly by multinational corporations prioritising environmental, social & governance considerations. Repurposing underperforming office assets into residential or mixed-use developments could also address urban housing shortages while boosting asset values. 

Poland and the Philippines have experienced similar trajectories, with developers repurposing underutilised spaces into coworking hubs or residential units. SA’s office landlords must adopt such adaptive reuse strategies, aligning with evolving tenant demands. 

Another important trend is digital transformation and the integration of technology. Data analytics and property technology solutions are for instance reshaping property management, tenant engagement and investment decisions. Local Reits must accelerate digital adoption and invest in these technologies to remain competitive, particularly as younger, tech-savvy tenants enter the market. 

To achieve sustainable growth SA Reits must adopt a collaborative approach. By pooling resources and expertise and leveraging member bodies and associations, they can unlock efficiencies and address systemic challenges. For instance, co-ordinated investments in infrastructure — such as transport links to logistics hubs or broadband access for smart buildings — can create value for the entire sector. 

Furthermore, partnerships with government and private stakeholders are crucial. Public-private collaborations, similar to those seen in Malaysia’s industrial property sector, could fast-track development and address socioeconomic challenges. By focusing on job creation and urban renewal projects, which are particularly relevant in the larger SA provincial hubs, Reits cannot only enhance their portfolios but also contribute to broader economic recovery. 

The sector has weathered its fair share of storms, but the fundamentals for recovery are beginning to take shape. A lower interest rate cycle, coupled with strategic adaptation and collaboration, could ignite a resurgence that not only benefits Reits but also drives broader economic growth. 

• Silke is associate partner at Hudson Sandler Invicomm.