SA REITs return 2.4% in October as income growth takes over from rate cuts

South Africa's listed property sector is staging a recovery, outperforming equities and bonds in 2026 on stronger balance sheets, growing distributions and renewed investor appetite, though fund managers caution that the easy gains from re-rating are gone.

South African REITs delivered a total return of 2.4 per cent in October, taking the year-to-date return to 6.5 per cent, according to the SA REIT Association's latest Chart Book. Over the same period bonds returned 5.7 per cent while equities fell 3.6 per cent. The sector has beaten equities in four of the past five months, with 18 of 22 listed counters recording gains in October, and rolling 12-month distributions rose 11.09 per cent, the strongest growth since 2017 outside the distorted comparisons of 2021 and 2022.

Fayyaz Mottiar, head of listed property at Amplify Investment Partners, said the recovery began with falling interest rates and improving sentiment but is now being carried by earnings. Distributable income grew about 7 per cent in the latest reporting season, and over the three years to the end of October listed property returned 113 per cent against 72 per cent for the All Share Index and 64 per cent for government bonds.

Ian Anderson, head of listed property at Merchant West Investments, attributed the improvement to three structural changes: repaired balance sheets, simpler business structures and better operating conditions. Loan-to-value ratios have fallen from a mid-40 per cent peak to just below 35 per cent, companies have disposed of non-core and offshore assets and simplified complex structures, and the easing of load shedding has cut diesel costs. Retail has been the strongest segment, led by convenience, township and rural centres, logistics demand remains firm, and offices are improving from a low base even as some Gauteng nodes still face high vacancies and negative rental reversions.

The question for investors is price. Mottiar said the sector trades on a forward yield of about 7.5 per cent against 8.5 per cent on the 10-year government bond, making it fairly priced rather than cheap, so returns must come from distribution growth. Gearing remains around 35 per cent with close to 80 per cent of debt hedged, but company guidance has eased to about 6 per cent as the benefit of cheaper debt fades. Access to capital has improved: Fairvest upsized an accelerated bookbuild to R1.25 billion from R500 million with the offer oversubscribed, Spear's acquisitions carry a blended yield of about 9 per cent, and Equites' developments are expected to deliver 8 to 9 per cent.

Risks include weak consumer spending, higher municipal and electricity costs, and a renewed rise in oil prices and global bond yields. Anderson warned that unreliable municipal services raise operating costs and capital expenditure, while above-inflation rates and tariffs erode net income, and Mottiar said unstable municipal coalitions could affect service delivery, billing, infrastructure and development approvals. "A recovery built on income growth can last; one built only on falling yields can't," he said.