SA’s listed real estate sector launches into its next growth phase

The South African listed real estate sector entered 2026 with strong momentum, underpinned by improving fundamentals, renewed access to capital markets and disciplined, strategic capital allocation off a clean base. This was evidenced by a tangible increase in direct real estate transactional activity.

While geopolitical volatility continues to create near-term uncertainty, it has done little to undermine the structural progress achieved in the local Real Estate Investment Trust (REIT) market. The structural reset of the sector now provides a clear platform for the next growth phase: a reinvigoration of listings, transactional activity and capital deployment into new sectors. 

The pivot

Following a challenging decade that began in 2017/2018, marked by structural economic challenges and earnings headwinds exacerbated by the COVID-19 rebase, the market spent three to four years trading sideways as it inwardly focused on self-help and stabilisation.

Following a period of deleveraging, structural reorganisation, rebasing of earnings and consolidation particularly in the listed real estate space, the sector emerged in a stronger position, with 2025 a pivotal inflexion point.

The sector has transitioned into a cleaner earnings cycle, largely due to disciplined capital allocation and more focused growth strategies from management teams. This distinct shift to specialisation has begun to lure back non-traditional real estate fund investors as they increasingly recognise this refreshed value proposition and renewed confidence.

The result of this fundamental positive momentum was the unwind of most of the pronounced and persistent discount to Net Asset Value (NAV), to become the top-performing sector on the JSE in 2025, delivering a total return of roughly 31%.

The question is no longer simply whether the sector has recovered. The more relevant question is how that recovery now translates into deal activity, capital formation and potential new listings.

The rise of specialist opportunities

The shift toward specialisation has fully evolved within the listed sector and has resulted in management teams, even those within diversified portfolios, operating with greater focus and managing various asset classes as pockets of specialisation.

For example, we are seeing players shifting into a nodal specialist strategy, but with broad sector exposure, combined with active portfolio management, to navigate the challenging local economic climate. This strategy focuses on dominating high-quality, high-demand areas in the industrial, office, and retail sectors, while expanding into alternative real estate through specialised investment partnerships.

Management teams that developed deep, defensible expertise within specific asset classes, regions and property themes were also clear winners in 2025. We continue to see South African category specialists deploy into opportunities both locally and abroad. These players have tended to deliver sector beating returns; allowing investors to specifically pick sectors that play into identified growth thematics.

These examples demonstrate the competitive growth advantage that funds can derive from deep, localised expertise, coupled with geographical focus, rather than chasing scale.

However, when that focus becomes too narrow, funds can start to run into challenges as it limits domestic growth, often forcing successful players to look offshore to deploy capital. Based on the successes over the last 18 to 24 months, the winning strategy remains balancing focused sectoral expertise, with a geographic reach that is well-understood and underpinned by positive, long-term fundamentals.

A credible route for new listings and niche sectors

Capital markets demonstrated renewed appetite for real estate in 2025, with c.R11.5 billion of new equity raised last year and momentum continuing into 2026, with year-to-date equity raised of R6.4bn and demand well in excess of that.

While we may not see a return to the explosive capital-raising highs of 2015/2016, the sector is clearly entering a phase of sustainable growth, and we anticipate the current capital market window to remain open should the conflict in the Middle East subside.

For listed real estate, these open, buoyant capital markets matter because the cost of capital determines the practical ability to transact. Where a REIT trades at tighter yields, has a clear strategy and can raise equity at a sensible cost of equity, acquisitions can be accretive.

Where a REIT still trades at a deep discount, management teams need to be more creative and disciplined. Asset recycling, co-investment, vendor funding, joint ventures and phased acquisitions may be more appropriate than issuing equity at an unattractive price.

The encouraging development is that capital markets are no longer closed to the sector. As traditional sectors face mixed outlooks, real estate investors are looking for strong structural trends that will support growth.

For example, the demand for data centre space is rising exponentially around the world, but is still in its infancy in South Africa. This offers a massive opportunity for REITs to pivot into digital infrastructure.

There is also growing demand for targeted exposure to specific sectors such as logistics, convenience retail, self-storage, data infrastructure, healthcare real estate, student accommodation and residential rental. A more diverse listed market would enable more precise capital allocation and reduce reliance on diversified REITs as proxies for the broader sector.

Unlocking future opportunities

With capital markets working, transactional activity in the listed space is returning. The gap between buyer and seller valuation expectations is starting to narrow, although it has not disappeared. Sellers are still often anchored to historic book values or peak-cycle expectations, while buyers remain focused on forward yields, capex requirements, funding costs and earnings accretion.

This tension is healthy. It should prevent a return to undisciplined deal-making. The current cycle is unlikely to reward acquisitions pursued purely for scale. Boards and investors are likely to support transactions only where the strategic rationale is clear and the funding structure is demonstrably accretive.

For many REITs, the hurdle rate has changed:, deals must compete not only with external acquisition opportunities, but also with internal capex, solar investment, redevelopment projects, debt reduction and share buybacks. Growth is not momentum driven, but rather driven through these decisions.

In our view, the listed market should once again be considered a credible route for high-quality real estate portfolios that have been incubated in the unlisted market over the past decade. 

Outlook and growth

Looking at potential interest rate impacts, South African rate expectations have been notably volatile over recent months. As recently as February, the market was pricing in approximately 50bps of rate cuts, which has since shifted materially.

Heightened global uncertainty, particularly geopolitical tensions in the Middle East and the associated impact on global inflation and risk sentiment, has led to a repricing of the forward curve. We are now seeing scenarios where between +50bps and +100bps of cumulative rate hikes are being priced over the next 12 to 24 months, with market direction heavily influenced by global macro developments, including US monetary policy and geopolitical headlines. As a result, the local swap curve has steepened, with rates increasing by close to 100bps since February.

For the listed real estate sector, this has several implications:

• Higher funding costs
• Hedging considerations
• Valuation impact

Having said that, current market expectations are pricing in a 15%+ total return potential over the next 12 to 18 months. From a distributable income perspective, most players have finally returned to pre-COVID levels, indicating that portfolios have achieved the stability required to resume organic growth through targeted, single-asset acquisitions.

The sector has decisively moved beyond recovery. Balance sheets are stronger, income streams are more stable, and capital markets are functioning once again. However, the path forward will be defined by selectivity and execution. Success will depend on disciplined execution and the ability to deploy capital into transactions that are strategically aligned, earnings accretive and sustainable over the long term.

We see potential for new, credible listings to come to market in 2026 and beyond that.

We unpack these themes and more about the SA Listed Real Estate sector in an upcoming Vodcast series.