Global and local listed property companies are set to boom in the coming years as central banks begin cutting interest rates globally and demand for office and living space picks up.
This is feedback from Stanlib property analyst Nicolas Lyle, who wrote in a research note that listed property has shown strong returns over the past year and is likely to continue to perform well.
Lyle said property globally was hit by a one-two punch of lower occupancy and higher rates due to the fallout of the Covid-19 pandemic and governments’ subsequent responses.
This led to one of the most challenging periods for property stocks in decades but also created an opportunity to invest in listed property companies at one of the cheapest entry points in history.
Investors who held their investments in property stocks during this period, from the beginning of 2019 to the end of 2023, were rewarded with a total rand return of 29%.
However, in the last year, global property has come into its own as an investment, outperforming all local asset classes in 2023.
South African-listed property stocks produced the second-best return in rand terms last year, ahead of the JSE Top 40 index and bonds.
Lyle recommends that investors grow their exposure to real estate investment trusts (REITs) worldwide as they are set to show further growth and outperform other asset classes in the next few years.
He also noted that, globally, investment institutions are growing their exposure to real estate companies, with total exposure growing 20% in the last decade and property making up over 10% of their portfolios.
Property is also expected to ride the wave of global interest rate cuts over the next two years as the sector has historically rebounded faster than other sectors of the economy.
“Even if the economy slows but avoids a deep recession, we expect global REITs and listed property stocks to deliver positive returns,” Lyle said.
“Most of them have investment grade credit status, reflecting their high-calibre management teams, high-quality portfolios, strong interest cover and relatively low levels of leverage.”
Lyle said Stanlib expects global property to deliver a total return of 10% in dollar terms in 2024, driven by good dividend yields and growth in free cash flow.
“Falling interest rates would add upside to our base case, whereas signals of an accelerating recession, such as a sharp rise in unemployment, would cool our enthusiasm.”