REITs on the Road to Recovery in 2022
Real Estate Investment Trusts, commonly known as REITs, are companies that own, operate, or finance income-producing properties. These strictly governed businesses are required to pay out income dividends to investors and are viewed as an exciting investment opportunity for avid property aficionados.
Listed REITs are valued at R384 billion in South Africa and are under immense pressure to maintain conservative debt levels of 40% or lower. This is in stark contrast to private trusts that can reach debt levels of up to 70%.
And while the industry currently faces sustained pressure spiked by the onset of the COVID-19 pandemic and the changing nature of the commercial real estate, 2022 will see exciting shifts taking place.
What to look for in 2022
1. Investment in REITs set to rise
Contrary to popular belief, REITs are anticipated to gain ground in 2022 as a portfolio diversifier. According to an international report, REITs act as an exciting alternative investment and could help to further diversify property portfolios in 2022. In addition, the pressure on REITs to remain attractive and profitable benefits investors through income pay-outs.
2. Recouping losses
2022 is also the year for REITs recovery as the impact of rental relief granted throughout the pandemic starts to wear off and returns start to rise.
3. Office sector’s future looks better than it did 18 months ago.
Despite the downturn over the pandemic, the office sector still receives the most rental payments out of all commercial property asset classes in South Africa, and with many set to head back to the office due to relaxed restrictions and an increase in vaccinations amongst employees, the short-term outlook remains positive.
4. Brick-and-mortar retail on the up
New retail developments are popping up around the country and it's no wonder. With vaccinations on the rise, many people are now comfortable enough to return to the traditional ways of shopping and this has investors paying close attention.
5. Go green
REITs that embrace finance sustainability projects through ‘green lending’ and other innovative green finance techniques, are ahead of the curve and are set to score big in 2022. A volatile electricity grid and talks of double-digit electricity tariff increases have REITs commandeering alternative power sources and this bodes well for investor confidence.