M&A moves reshape SA Real Estate and accelerate market recovery

• Real estate M&A surges as investors chase value, scale and high-growth sectors.
• Lower vacancies, easing rates and stronger balance sheets reignite confidence.
• Capital recycling fuels acquisitions in logistics, data centres and mixed-use hubs.

South African real estate sector undergoing structural realignment

‍Improved operational fundamentals, interest rate relief, balance sheet repair, and consequent valuation re-ratings are driving both opportunity and risk-taking.

In this context, M&A and portfolio reshaping have become strategic tools for scale, capital recycling, unlocking latent value, and accelerating access into growing sub-sectors. Through divestitures, companies are reinvesting into higher-growth segments aligned with South Africa’s digital and consumption shifts. Logistics, data centres, and mixed-use precincts are attracting capital, while traditional office assets, still burdened by work-from-home dynamics, are being streamlined. The strategic use of M&A allows firms to acquire quality assets at attractive valuations, realising value through operational integration and economies of scale.

Over the past 24 months, several high-impact real estate deals illustrate this strategic shift with pricing, deal structure and capital flows evolving. This marks a pivotal period for investors and operators to capitalise on a market showing signs of sustained recovery with real estate M&A emerging as a proactive mechanism for value creation.

Operational performance has strengthened notably in recent years, with vacancy rates declining, rental reversions turning positive, and rental growth stabilising. Growthpoint's South African office portfolio exemplifies this trend, with vacancies dropping from 15.9% in December 2024 to 14.6% by June 2025, rental renewals improving from -7% to -3%, and over 50% of new or renewed leases at equivalent or higher levels. These gains translate into net operating income (NOI) expansion and enhanced like-for-like portfolio returns, which in turn support rising valuations.

Simultaneously, the REIT sector’s deliberate de-gearing initiatives (reducing debt through asset sales and equity issuances) have lowered loan-to-value ratios and improved balance sheet flexibility. With interest rates easing and lending margins compressing in a highly liquid debt market, financing costs have moderated, bolstering earnings, easing debt service pressures, and increasing free cash flow. This combination represents a structural improvement, attracting capital previously deterred by meaningful uncertainty and providing a platform to once again pursue inorganic growth strategies.

Capital recycling and equity raises driving transactions

The COVID-19 period accelerated the recycling of capital from underperforming or non-core assets into higher-growth sectors, as companies divested of tail assets and, in some instances, offshore portfolios, to de-gear and reinvest domestically. For example, Hyprop and Attacq exited their direct West African assets, while Growthpoint and Equites disposed of UK assets to streamline South African operations.

More recently, renewed appetite for equity raises has supported acquisitive growth and balance sheet repair. Vukile’s acquisition of Chatsworth Centre and Dipula’s purchase of Protea Gardens Mall are notable examples, both underpinned by fresh capital, signalling a more confident use of equity as a growth enabler.

These activities underscore broader discipline in capital allocation across the sector.

While the momentum is positive, several challenges remain.

Not all companies have benefited equally, with some companies remaining constrained by post-pandemic balance sheets. Although interest rate relief provides breathing room, a global economic downturn could reverse this trend and heighten refinancing risks. Moreover, regulatory hurdles, including stricter environmental compliance and rising municipal rates, add layers of complexity to deal execution.

Investors are increasingly prioritising due diligence that extends beyond financial assessments to include ESG factors, ensuring that acquired assets are resilient to climate and infrastructure vulnerabilities prevalent in South Africa.

Looking ahead, the evolution of capital flows will define the next chapter.

As valuations re-rate upward, private equity and sovereign funds are likely to increase allocations to the South African real estate sector, drawn by yields that outpace those in developed markets. This could accelerate M&A volumes and drive sector consolidation, as larger players seek scale and refined portfolio composition across preferred asset classes and geographies.

For operators, the imperative is clear: leverage M&A not as a reactive tool but as a proactive strategy to build defensible moats in a competitive landscape. By focusing on differentiated, well-located and adaptive assets, South African real estate investors can position themselves for sustained gains.

In essence, South Africa's real estate M&A landscape is a barometer of economic confidence. The structural shifts underway, fuelled by improved fundamentals and strategic transactions, position the sector for investor gains in the medium-term.

However, success will hinge on disciplined capital allocation, balance sheet flexibility and adaptive risk management. As the market matures, those who navigate this realignment effectively will not only recover lost ground but also lay the foundation for long-term outperformance in Africa's most dynamic real estate arena.

About the author - Dipeel Parbhoo is Transactor Team Lead at RMB