Beyond Interest Rates: Why Governance, Risk and Resilience Will Define REIT Performance

By Louis van Manen, Head of Real Estate & Construction

With contributions from Richard Walker, Head of Risk Advisory Services and Farhana Hassim, Director of Risk Advisory Services

South Africa’s listed property sector appears to be entering a phase where leadership, judgement and execution will be as important as the broader market conditions. While interest rates, growth expectations and asset values will continue to influence REIT performance, the more important question may be which REITs are best placed to perform sustainably through the next cycle.

That is an important issue for boards, executives and stakeholders across the real estate and construction sector. In our view, the ability to attract capital, protect value and maintain stakeholder confidence will increasingly depend on the extent to which organisations can demonstrate sound governance, clear risk oversight and practical resilience.

This focus is understandable. Higher interest rates have increased borrowing costs, placed pressure on property valuations and affected investor appetite for income-generating assets. As expectations around the interest rate cycle begin to shift, market attention has naturally turned to whether listed property will benefit from a more supportive macroeconomic environment.

However, while interest rates remain important, they are only one part of the performance equation.

The longer-term differentiator for REITs will increasingly be the quality of governance, risk management and resilience. In a more complex and uncertain operating environment, sustainable performance will depend not only on the strength of the property portfolio, but also on the discipline with which boards and management teams manage risk, allocate capital and respond to disruption.

Performance Is No Longer Only About the Property Portfolio

Traditionally, REIT performance has been closely associated with portfolio fundamentals such as location, occupancy levels, rental growth, tenant quality and lease duration. These remain critical factors. A well-positioned portfolio with strong assets and reliable income streams will always be central to value creation.

However, today’s operating environment requires a broader view of performance. REITs are now exposed to a wider range of risks that can materially affect earnings, valuations, investor confidence and reputation. These include cybersecurity threats, energy insecurity, municipal service delivery failures, infrastructure constraints, climate-related risks, regulatory change, tenant distress and supply chain disruption affecting development and maintenance projects.

Many of these risks sit outside traditional property performance metrics, yet they can have a direct impact on operational continuity, cash flows and asset values.

In the South African context, this also includes an increasing dependence on external infrastructure and specialist capabilities. Although electricity supply has stabilised in the short term, concerns relating to long-term energy security, water availability and the resilience of ageing water infrastructure continue to present operational risks, particularly in Gauteng.

At the same time, access to specialised technical and leadership talent remains an important consideration. As a result, boards are increasingly required to look beyond the property portfolio itself and assess the resilience of the broader ecosystem on which sustainable performance and asset value depend.

For boards, this means that performance oversight can no longer be limited to financial indicators and portfolio statistics. The key question is whether the organisation has the governance structures, risk insight and resilience capabilities required to protect and create value in a volatile environment.

Governance as a Driver of Value

In the listed property sector, where access to capital, investor trust and stakeholder confidence are critical, governance quality can become a meaningful differentiator. Investors and lenders are increasingly interested not only in what assets a REIT owns, but also in how decisions are made, how risks are managed and how transparently the organisation engages with stakeholders.

Strong governance supports performance by improving the quality of strategic decision-making, strengthening capital allocation discipline and ensuring that management teams remain accountable for both financial and non-financial outcomes.

For REIT boards, this means moving beyond compliance-focused governance discussions. The question is not simply whether governance requirements are being met. The more important question is whether governance is helping the organisation create and protect value.

The emphasis on governance as a driver of sustainable value creation is also aligned to the principles of King V, which reinforces the role of boards in exercising ethical and effective leadership while balancing performance, risk and stakeholder expectations.

Focus on Balance Sheet Resilience

While interest rates remain a key area of focus for investors, REIT boards should be equally focused on the resilience of the balance sheet itself.

Periods of economic uncertainty have demonstrated that access to capital can quickly become constrained and refinancing conditions can change significantly. In this environment, organisations with strong liquidity positions, prudent gearing levels and well-managed debt maturity profiles are often better positioned to withstand market volatility and pursue growth opportunities.

Balance sheet resilience is therefore not only a finance consideration. It is a governance and risk management imperative. Boards should maintain clear visibility over debt maturity profiles, refinancing concentrations, covenant compliance, liquidity reserves, funding flexibility and exposure to interest rate volatility. They should also understand how capital allocation decisions may affect long-term financial sustainability.

The strongest REITs are typically those that can continue executing strategy during challenging market conditions rather than being forced into defensive action. A resilient balance sheet provides management with flexibility to invest, adapt and respond to emerging opportunities while competitors may be focused on preserving capital.

For boards, the key question is not simply whether the organisation can withstand the next interest rate cycle, but whether it has the financial resilience to navigate a range of potential disruptions while continuing to create value over the long term.

For REIT boards, the challenge is clear: focus not only on market conditions, but on the organisation’s ability to manage uncertainty. The best-performing REITs in the next phase of the property cycle may not simply be those with the strongest property portfolios, but those with the strongest governance foundations, the most resilient balance sheets and the clearest understanding of risk.

While markets remain focused on interest rates, boards should focus on the factors they can influence directly. Governance, risk management and resilience are no longer merely safeguards. They are increasingly becoming drivers of performance.

BDO perspective

From a BDO perspective, this presents an opportunity for REIT leaders to broaden the discussion beyond short-term market sentiment and interest rate expectations. These factors will remain relevant, but sustainable confidence will more likely be earned through clear decision-making, balance sheet discipline, credible risk responses and assurance that focuses on the areas that matter most.

For boards and executive teams, the leadership point is therefore fairly clear. Resilience should not be seen only as a defensive response to uncertainty, but as an important part of how a REIT protects value and positions itself for growth. Those that embed governance, risk and assurance into strategic decision-making should be better placed to maintain stakeholder trust, access capital and respond effectively to disruption.

As the sector looks ahead, the stronger performers are likely to be those that combine a realistic view of market conditions with disciplined execution. In that sense, governance, risk management and resilience are not merely support functions; they are becoming central to sustainable performance in the listed property sector.