Business failures and a rental rebate given to Edcon dragged on the Investec Property Fund's net property income growth during the six months to end-September.
The base net property income growth of 1.3% year-on-year was, however, in line with the fund's expectations.
Despite the challenging environment, almost 90% of letting space that expired in the period, was renewed or re-let and the overall vacancy rate remains 3.9%.
The fund announced an interim dividend of 70.93 cents per share. This is compared to 68.81cps for the same period in 2018.
While growth in the fund's local portfolio was constrained, mainly due to the impact of the restrained economic climate on its tenant base, its offshore investments continued to outperform.
Internationally, the fund made an initial investment into the new Pan-European light industrial (PELI) platform during the interim period, as well as a further £25m into the UK Fund. The PELI is invested in logistics properties located across Europe.
This takes its respective holdings in these platforms to 25% and 32.5% respectively and increase the fund's offshore exposure to 18.6%.
The fund's international portfolio showed a 12.3% investment return in rand (11.9% in euro) from the Pan-European logistics (PEL) platform.
Property analyst Erwin Rode told Fin24 that the "super performance" of the fund's offshore assets in rand terms underscores the importance for funds to have a significant exposure to quality non-South African investments.
The fund expects growth in its South African portfolio likely to remain in the low single digits. It expects full year growth of between 3% and 5%.
The vacancy level in the SA office sector remained flat at 7.0%, but the fund expects it to improve by March 2020.
At the same time, letting in the SA industrial sector appeared resilient despite an increase in bad debts and arrears due to the client base remaining under pressure.
In the SA retail sector, impacted by subdued consumer spending, 99% of the space that expired over the interim period was let.
According to the fund's joint CEO Darryl Mayers, difficulties facing the broader SA economy have resulted in a marked increase in business failures and liquidations. These then translated into bad debts that impact the fund.
He added that this has, however, not impacted the quality of the fund's portfolio as reflected in re-letting or renewal of 89% of space that became available.