Real estate share prices and the underlying fundamentals of commercial property assets weakened in early 2020, as South Africa and the rest of the world came to grips with managing through the pandemic, says industry association the South Africa Reit Association chairperson Estienne de Klerk.
He notes that the country’s real estate investment trusts (Reits) recovered somewhat in the final months of 2020, indicating the potential start of a long-term uptrend in the real estate sector.
The outlook for 2021, however, remains uncertain, in part because the global Covid-19 crisis continues, says De Klerk.
The pace and extent of the sector’s improvement relies on the availability of vaccines and the effectiveness of vaccination programmes locally in the first instance, but also globally, he states.
Reits stand to reap significant benefit from a potential rebound in economic activity once vaccines become widely available. The result is likely to be a stronger latter-half for the sector, gaining momentum towards a more complete recovery in 2022, De Klerk adds.
“While the pandemic exacerbated South Africa’s underlying economic weakness, and much rests on an improvement in economic conditions, it is encouraging to witness how property owners who are key contributors across the whole South African economic value chain, have demonstrated their commitment to the country, and small, medium and micro enterprise businesses in particular, by providing Covid-19-related rent relief that has helped thousands of businesses stay afloat,” he notes.
“The significant reduction in short-term interest rates will also provide some support for further recovery in the economy. as well as the South Africa property sector. The tailwind of lower interest rates not only reduces the cost of capital to the South African Reits but should also play a role in the rental demand dynamics for space over the medium term.
"While the lockdown pushed pause on corporate activity and deal-making last year, we may see some corporate action like takeovers and mergers as this year progresses, as well as some de-listings in the sector. Balance sheet strength, regulatory compliance, quality lease covenants and strong leadership will continue to come under the spotlight for South African Reits in 2021,” De Klerk adds.