South African investment property achieves highest annual total return since 2015

South African investment property posted the highest annual total return since 2015, leading the way among real estate markets globally that have released results for the 2024 calendar year.

The MSCI South Africa Annual Property Index showed that in the twelve months ended 31 December 2024, the local investment property produced a total return of 11.5%, which comprised an income return of 8.4% and a positive capital growth of 3.0%. 

The index sponsored by Absa, measures unlevered total returns of directly held property investments from one valuation to the next. The index tracked the performance of 1 733 property investments, with a total capital value of R 387.7 billion as at December 2024.

South Africa's real estate’s positive capital growth was supported by a steady base rental growth of 4.8%, while the overall vacancy rate was also stable at 6.6%.

Industrial property continued to be the top-performing property type during 2024, with a total return of 15.2%. The sector continued to benefit from robust occupier demand and ended the year with a vacancy rate of 2.1%, which was close to historic lows going back to the index’s inception in 1995. 

Retail property, the index’s largest sector at 60% of the index’s capital value, followed with a total return of 11.7%, driven by a continued strong performance by smaller format and convenience retail.

While offices underperformed the other main property sectors, it posted a much-improved total return of 8.9% - its best since 2017- on the back of its first positive capital growth in seven years.

“Forward-looking performance will be influenced by the country’s economic trajectory.

"While there are positive indicators, such as lower inflation and interest rates expected in 2025, challenges with electricity supply and costs, water shortages, and geopolitical uncertainty could dampen prospects," Eileen Andrew, VP at MSCI, said, noting these results give investors in direct property investments reason to smile.

"The MSCI index results for 2024 provide a cautious optimism; however, sustained growth is dependent on addressing systemic challenges and ensuring stable infrastructure and governance,” Andrew said. 

She said the outlook for the sector was positive.

“The 2024 results are underpinned by solid fundamentals, so we are well positioned for growth. However, going forward, growth will depend on economic growth and the impact that the tariffs may have on interest rates.”

Andrew said investors may continue to invest in properties to ensure they are well-positioned for growth. She said they needed to make their properties attractive and fit for purpose as well as mitigate the impact of infrastructure challenges.

“Geo-policies may result in higher inflation which will impact consumers' spending, especially disposable income.”  

During the results release, Mahir Hamdulay, the head of Financials & Property Equity Research at Absa CIB, expressed that the low-growth environment in South Africa presents challenges and headwinds that could hinder future prospects.

“We need higher growth, especially in the office sector, to sort of make meaningful headway into reducing that vacancy number. I would say it is more the uncertainty around growth and sentiment especially in the listed space, what that is going to mean from a return outlook perspective,” Hamdulay said. 

CEO of Vukile Property Fund, Laurence Rapp, addressed the uncertainty in the property sector, noting the significant anticipation that existed internationally in the last quarter of 2024.

“With interest rates coming down, the sector is looking to really grow, I suppose physically and listed. Then we came into 2025 with (US President Donald) Trump and the tariff story.

"What that has really done is raise the prospects of the interest rates cycle having stalled certainly in the US, and inflation going up. Now if that happens and interest rates don’t come down, I think will sort of be a handbrake for the sector overall,” Rapp said.

He said that on the flip side, when seeing growth slow in certain markets, like Europe, for example, they will have to cut interest rates to try to stimulate growth and that should then be positive to the sector.

“On the whole I think the issue is caution, people adopting a wait and see attitude. We need to see how the next few months pan out and get some kind of directionality where the moments are. For the moment it is a wait and see whilst the tariff story unfolds.”   

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