Where to find value in SA’s listed property sector

The listed property sector in South Africa has faced significant challenges in 2020, with massive declines resulting from the impact of COVID-19 and a weak economy. Once a top performer for investors, the sector has struggled to recoup losses seen in recent years. According to Keillen Ndlovu, Head of Listed Property Funds at Stanlib, vacancies in retail and office markets are expected to rise, adding further pressure to an already strained sector. Ndlovu acknowledges the tough environment in which the sector operates, with current returns being dismal even before the pandemic hit. The COVID-19 pandemic has exacerbated the situation, leading to further declines in property valuations. Despite this bleak outlook, Ndlovu believes that the worst may be over for the sector, as most of the bad news is already priced in. One of the key concerns facing the sector is the shift towards remote work and its long-term implications for the demand for office space. Ndlovu predicts a decrease in demand for office space over time, as companies adapt to more flexible working arrangements. This trend is expected to lead to an increase in office vacancies, presenting a significant challenge for property owners. In addition to the office market, the retail sector is also facing challenges, particularly with the slow growth of online shopping in South Africa. While online shopping is expected to grow gradually, it is unlikely to reach the same levels as more advanced markets like the UK and US. Ndlovu highlights the logistical challenges and limited access to online shopping for a significant portion of the South African population. Despite these challenges, Ndlovu suggests that there are opportunities for investors to find value in the listed property sector. He recommends considering defensive stocks such as storage facilities and industrial equities, as well as oversold stocks like high-prop and Attac. These stocks are trading at significant discounts and may present attractive investment opportunities for those willing to take on higher levels of risk. While the sector continues to face uncertainties, Ndlovu's insights offer valuable perspectives for investors looking to navigate the current challenges in South Africa's listed property market.