South African REIT sector experiences modest pullback in June

The South African REIT sector experienced a modest pullback in June, declining by 1%, trailing both equities (+2.4%) and bonds (+2.3%) for the month, following a really strong April.

However, analysts caution against interpreting the decline as a reversal in fundamentals, pointing instead to profit-taking in larger counters, following an extended period of outperformance. In April, South Africa’s REIT sector gained 6.9% and outperformed equities (4.3%) and bonds (0.8%), despite a disrupted trading month due to public holidays.

“The June dip appears more technical and structural. Many of the more liquid stocks have delivered stellar returns over the past 18 months, so some rotation was inevitable, particularly in a month where global sentiment was otherwise risk-on,” said Ian Anderson, head of listed property and portfolio manager at Merchant West Investments, and compiler of the SA REIT Association’s monthly Chart Book.

Hyprop, Resilient, and Redefine saw declines of just over 2%, and Growthpoint and Vukile edged slightly lower. Accelerate delivered a standout performance. The company gained 17.8% in June, following the announcement of a R100 million rights offer aimed at enhancing Fourways Mall and strengthening its working capital position.

Despite softer equity price action, operational performance remained strong. Fairvest, Stor-Age, and Vukile’s June results showed solid progress, with all three projecting mid-to-high single-digit growth in distributable income through the 2025 and 2026 financial years.

“These are healthy forecasts and suggest the dividend growth story has further potential. In fact, we are starting to see early signs of renewed access to equity capital, as experienced by Spear’s successful R749m capital raise,” said Anderson.

Fortress’s resumption of dividends also contributed significantly to year-to-date growth.

Anderson said that looking ahead, the outlook for lower interest rates remains supportive of the property sector, with a strong rand and lower oil prices bolstering expectations for a rate cut by the South African Reserve Bank.

Rate cuts would further reduce funding costs, underpin valuations, and support income growth into 2026 and beyond, said Anderson.

The next SA Reserve Bank’s Monetary Policy Committee meeting is on July 31, 2025, and hopes are high for another rate cut, as at the last meeting on May 29, the repo rate was cut by 25 basis points to 7.25%, based on an improved inflation outlook and fragile economic conditions, and support for the cut by all committee members.

Anderson said sector valuations remain attractive, and dividend momentum continues to anchor investor confidence in the medium term.

“The return to high single-digit dividend growth for the sector underpins current valuations, and if these growth rates are maintained into 2026 and 2027, they should provide significant capital upside for investors,” he said.

Improving property fundamentals, lower official interest rates, and access to capital at reduced costs all pointed to stronger distributable income growth in the medium term, he said.

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