Challenges faced by REIT sector and solutions to overcome them in 2020

The South African property sector has faced significant challenges in recent years, with the Real Estate Investment Trust (REIT) sector experiencing modest growth after a 25% decline in 2018. Keillen Ndlovu, Head of Listed Property Funds at Stanlib, shed light on the struggles faced by the sector and potential solutions to overcome them in 2020. The biggest factor impacting the sector has been weak economic growth, leading to a lack of confidence among investors. Retail and office sectors, which make up approximately 75% of the sector, have been particularly hard hit, with negative rental growth contributing to the overall weak outlook for 2020. Ndlovu highlighted the need for economic growth and a decline in new supply in the office market to revive the sector. Additionally, addressing issues such as power supply, particularly the cost and reliability of electricity, is crucial to stimulate growth in the property sector. Despite the trend of virtual offices and flexible workspaces, which are gaining popularity but remain relatively small in South Africa, the traditional office spaces continue to face challenges with high vacancies. Looking ahead to 2020, Ndlovu pointed out that the industrial sector, particularly logistics, is showing better resilience compared to other segments in the market. Companies diversifying into offshore markets have helped cushion the impact of the weak local economy, with Eastern Europe emerging as a promising region for property investments. The region offers growth opportunities, supported by factors such as skilled labor and lower costs, in contrast to the stagnant growth in South Africa. Ndlovu emphasized the importance of addressing key issues such as employment creation and addressing the challenges faced by Eskom, South Africa's struggling power utility. He emphasized the need for President Cyril Ramaphosa to focus on creating employment opportunities and addressing critical infrastructure challenges like Eskom to support the growth of the property sector. Despite the challenging outlook for the local property market, Ndlovu noted that smart money is flowing into offshore markets, with companies with offshore exposure expected to outperform. In conclusion, while the South African REIT sector faces hurdles in 2020, strategic investments and a focus on addressing key economic and infrastructure challenges could pave the way for a more resilient and prosperous future for the sector.