• Sun. May 26th, 2024

More downward pressure on local rental incomes

ByEconomic Times

Jan 6, 2023

By ETimes

Bard Santner, a local investment management firm has said local rental incomes will continue to be depressed in the short to medium term.

The investment management firm has reiterated that the country’s rental sector is facing more downward pressures. The local property market is a mixed bag as returns are strongly influenced by macroeconomic factors.

In a report on the real estate sector, Bard Santner said, “The economy still faces significant endogenous and exogenous inflationary pressures with material and direct effect on the local currency. This will negatively affect consumer disposable incomes, business profitability, and result in lower demand for commercial renting space.”

Therefore, consequently, returns from office, retail and industrial space markets will remain lower than regional peer markets like Zambia, Mozambique and South Africa.

Bard Santner believes, with the heightened uncertainty means there is potential for further downside in rental incomes in both the medium- and long-term periods.

The report read, “The retail market has been hard hit by current economic challenges, worsened by Covid-19 lockdowns over the last 2 years. There also seems to have been a noticeable shift to online shopping by consumers, undermining the business model employed by a large majority of landlords across the market.”

According to the investment managers, a growing number of informal traders and vendors in cities and towns are driving traditional formal tenants out of business.

“In a bid to manage cost and fight competition, tenants are being forced to downsize or close, leading to excessive supply of space in the commercial lease market. With the yield ranging between 5 and 7%, Zimbabwe ranks as the lowest in SADC,” the report read.

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The unavailability of mortgages and high cost of borrowing has been lauded as the reason that has left many landlords stuck with unattractive old warehouses on the other side of the segment, driving commercial tenants to switch to owner occupied warehouses and spaces.

Such a situation is the one Bard Satner believes has been an incentive to local property investors to promote Real Estate Investment Trusts (REITs) to generate some liquidity from underperforming assets.

The office space segment is also still nursing wounds from its fall-out with Covid-19 induced lockdowns as remote working patterns are becoming increasingly popular.

Ongoing shift to suburban areas like Newlands, Eastlea and Milton Park is dampening the office space market in the Harare business center for instance, and the same can be observed in other cities.

“Operators are converting their houses into offices to cut expenses and maintain profitability. At an average of 7%, the yield is marginally lower, translating to low cash flows relative to neighboring countries that are yielding over 9% per annum,” the investment management firm said.

Meanwhile many suburban shopping malls across the country have struggled to retain the traffic they typically attract in their first few months of launch.

In the residential space, most sellers prefer to get paid only in foreign currency due to continuous currency depreciation right at the time when the country is faced with serious foreign currency shortages.

“Hope for residential property sellers is now pinned on Zimbabweans in the diaspora and those that are working in executive roles. The majority of domestic buyers are locked out of the market,” the report added.

This situation will remain as is until a vibrant mortgage market is restored in the country according to Bard Santner – Harare

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