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 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, says Kyle Rollinson and Karl Priessnitz from Investec Corporate and Investment Banking, Real Estate.
They say 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 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.”
South African real estate investment trusts (REITs) held steady in May 2026, delivering a total return of 0.7% for the month as the sector consolidated after April’s strong rebound. SA REITs edged ahead of equities, with the All Share Index returning -0.3%, while trailing bonds, with the All Bond Index returning 2.9%, leaving the sector up 2.0% year to date.
As the newly released SA REIT Association Chart Book May 2026 makes clear, the near-flat headline return masked an unusually busy month, with a large number of funds reporting.
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, says Investec CIB, Real Estate.
They said 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.”
Rollinson and Priessnitz say 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%.
They add that 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, Rollinson and Priessnitz say.
The specialist opportunities rise
According to Investec CIB, Real Estate, 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.
Navigating the challenging local economic climate
For example, they say they 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 said to also be 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, Investec CIB, Real Estate says.
However, Rollinson and Priessnitz warn that when 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, they say.
A credible route for new listings and niche sectors
Capital markets demonstrated renewed appetite for real estate in 2025, with 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, Investec CIB, Real Estate says.
They say that while they 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 they anticipate the current capital market window to remain open should the conflict in the Middle East subside.
They added that 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, they say.
Potential interest rate impacts
Looking at potential interest rate impacts, Investec CIB, Real Estate says 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, they say.
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, Rollinson and Priessnitz say.
“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.”
Implications for the listed real estate sector:
•Higher funding costs
•Hedging considerations
•Valuation impact
Having said that, Investec CIB, Real Estate says current market expectations are pricing in a 15%+ total return potential over the next 12 to 18 months.
From a distributable income perspective, they say 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.
REIT sector has moved beyond recovery
Balance sheets are stronger, income streams are more stable, and capital markets are functioning once again, Rollinson and Priessnitz say. However, they say 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,” Rollinson and Priessnitz say.
“We see potential for new, credible listings to come to market in 2026 and beyond that.”
According to Ian Anderson, the Portfolio Manager at Merchant West Investments and compiler of the SA REIT Chart Book, May’s modest return looks more like a pause for breath than a change in direction.
A heavy flow of company results confirmed that balance sheets are in their best shape in years. The underlying income recovery remains intact, even as share prices stay sensitive to bond yields and the interest-rate outlook, Anderson said earlier this month.
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