Key value drivers in considering retail real estate investments

South African Real Estate Investment Trusts (REITs) have shown strong performance and future potential due to improved governance, economic conditions, and strategic investments in innovation, social stewardship, and the township economy.

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South African Real Estate Investment Trusts (REITs) have gained significant attention following their rally at the end of 2023 and their outperformance compared to other asset classes this year to June, delivering an 11.1% total return according to SAREIT. Recent developments have further improved the sector outlook, suggesting enhanced performance.

The formation of the Government of National Unity is believed to have promoted greater accountability in governance and instilled a renewed sense of optimism about the country’s future. Additionally, the cessation of load shedding has fuelled expectations of improved economic output. The reduction in interest rates is expected to further boost business and consumer confidence and ultimately economic growth, which bodes well for the sector. Independent property analyst, Keillen Ndlovu, recently noted the recovery in the retail property sector, highlighting that township and rural centres are the standout performers. The economic tailwinds suggest future enhanced performance from these segments. In considering an investment in the retail real estate sector, there are long-term value drivers to consider:

Innovation and technological advancements

Innovation enhances decision-making, leading to more competitive, productive and operationally efficient industries. This is evident in the retail property sector where the use of advanced data tools and technologies support understanding of trading and consumption patterns and behaviours. The in-depth, real-time data gathered through these tools provides insights into shopper movement and spending, conversion rates and tenant trading statistics which inform optimal tenant selection and placement.

This customer-centric approach supports retail-focused REITs to improve their tenant offerings and meet the surrounding community’s needs, thereby amplifying shared value.

Social stewardship

The retail property sector is well-positioned to drive environmental and social impact. Investments in solar power, energy and water management are becoming more prevalent, addressing the critical issue of climate change. The social aspect of ESG is equally crucial. Retail REITs with their reach across urban and rural areas make contributions which are essential in bridging social gaps, although this is often underappreciated. Retail is an inherently social industry and is deeply intertwined with the wellbeing of society.

Social investments include community-specific initiatives, bursaries, internships, funding programmes for emerging retailers, skills development, startup cost coverage, free retail space and mentorship which help create a pool of employment talent and develop self-sustaining tenants. Furthermore, the sector’s alignment with community forums and involvement in local issues are fostering a better sense of partnership. These investments towards societal development have a multiplier effect and circular benefit which contribute to economic prosperity.

Buoyant township economy

Laurence Rapp, CEO, Vukile Property Fund
Laurence Rapp, CEO, Vukile Property Fund

The retail property sector with exposure to township and rural portfolios has demonstrated remarkable resilience against challenging economic conditions. Part of this is due to the flourishing township economy with its expanding consumer base, vibrant entrepreneurialism, social grant foundation and largely cash trade, factors that make these market segments attractive for retailers.

According to geospatial services provider Afriscope, cited in Nedbank Private Wealth Research, nearly half of South Africa’s urban population is estimated to reside in over 500 significant townships. The township economy remains largely untapped and much of its market value resides in the informal sector. Township economy expert, GG Alcock, believes South Africa’s informal economy is worth over R600-billion per annum. Retail REITs that can incorporate this sector in their business models and effectively leverage data and social connections to understand each township’s community and unique culture will be better positioned to unlock this inherent potential. Retail REITs reflecting these value drivers in their strategies present investment opportunities that will deliver sustainable value. 


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