Industrial property leads with 11.2% total return in Q1 MSCI South Africa Annual Property Index Report

Posted On Tuesday, 11 June 2024 09:12 Published by
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MSCI South Africa Annual Property Index Report: Industrial Property Leads with 11.2% Total Return

The South African Property Owners Association (SAPOA) is pleased to announce the findings of the MSCI South Africa Annual Property Index for the first quarter, which highlighted industrial property as the star performer with a remarkable total return of 11.2%.

Overall, the Index revealed an impressive ungeared total return of 8.6% for direct real estate, significantly outpacing the consumer price inflation rate of 6.0%. This strong performance is attributed to an income return of 8.2% and capital growth of 0.4%.

Industrial property led the market with a remarkable total return of 11.2%, driven by robust occupier demand and the lowest vacancy rates seen since 2007. Investor allocation to industrial properties remained stable, with a notable shift towards distribution centres over the past five years. The performance spread of industrial total returns has narrowed since 2020, indicating a more uniform market upswing.

In 2023, capital growth for industrial properties was primarily driven by a 5.0% increase in net operating income, despite a negative impact of -2.5% from yield changes. Operating costs for properties rose to 43.1% of gross income, with the industrial sector uniquely achieving positive net operating income growth over the last five years.

The growth of e-commerce has significantly boosted demand for distribution centres. South Africa’s online retail sector expanded by an impressive 29% in 2023, reaching R71 billion. This surge in e-commerce has focused investor interest on distribution and logistics properties, reflecting the evolving dynamics in the retail and industrial sectors.

Despite challenges at South African ports and a production capacity utilisation rate below 80%, investor interest in distribution and logistics properties has remained robust. These logistical challenges have redirected investor focus from traditional manufacturing towards more resilient and adaptable distribution infrastructure.

Deal volume in the industrial property sector has remained robust, even amid muted transaction activity in the broader commercial property market. Industrial property accounted for 23% of overall deal volume for transactions exceeding USD2.5 million in the five years ending December 2023, underscoring sustained investor confidence in this sector.

SAPOA acknowledges the resilience and adaptability demonstrated by the South African real estate market, as highlighted in the MSCI South Africa Annual Property Index for 2023. The industrial sector's outstanding performance, driven by strong demand and strategic investor focus on distribution centres, underscores the evolving landscape of the South African property market.

Last modified on Wednesday, 03 July 2024 10:16

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