Mariette Warner, head of property funds at Stanlib, says that as long as interest-rate hikes remain moderate, the market can expect a steady performance from listed property next year, with a 10%-15% return.

The listed property sector delivered a return of more than 20% this year.  Warner says the interest rate risk is being “buffered” by “very strong earnings growth” from listed property companies. The strong earnings growth stems from strong underlying property fundamentals.

Since 1994, listed property has outperformed long bonds consistently, no matter whether inflation has risen or fallen or whether earningshave been weak or strong. The only exception was in 1998, when there was an economic shock as a result of what was called the “Asian contagion”.

Warner says that the longer-term earnings prospects of listed property are “extremely encouraging”. Paul Duncan, property analyst at Catalyst Fund Managers, says although certain listed property funds enjoy opportunities to reduce their debt-funding costs and operating-cost ratios, the main driver of performance will be distribution growth driven by rental growth.

“I think that listed property continues to offer an attractive income yield with the prospect of good growth,” says Duncan. Looking at the various property sectors, he says retail property will continue to perform well, albeit at a slower rate than in the past two to three years.

He says there should be “excellent growth” in income on industrial property and offices next year on the back of supply constraints and higher rentals based on rising building costs at new developments.

Duncan also expects to see more consolidation in the listed property sector.