Declining rental incomes threatens Real Estate Sector

Bard Santner, a local investment management firm says rental incomes within the real estate sector will continue to be depressed in the short to medium term as tenants are being forced to downsize their spaces.

In a report on the real estate sector, Bard Santner, said in a bid to manage cost and fight competition, tenants are being forced to downsize or close, leading to an excessive supply of space in the commercial lease market.

The investment firm said on the industrial and retail space market, the retail market has been hard hit by current economic challenges, worsened by Covid-19 lockdowns over the last 2 years.

It said 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.

“Again, 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,” the investment firm said.

The firm noted that the unavailability of mortgages and high cost of borrowing in Zimbabwe 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.

“Arguably, this has also been an incentive to local property investors to promote REITs to generate some liquidity from underperforming assets,” it said.

On the office space market, the segment is also still nursing wounds from its fall-out with Covid-19 induced lockdowns as remote working patterns are becoming increasingly popular. Bard Santner said the 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 percent, the yield is marginally lower, translating to low cash flows relative to neighboring countries that are yielding over 9 percent per annum.

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

On the residential property market, the firm said 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. This situation will remain as is until a vibrant mortgage market is restored in the country,” Bard Santner said. – BH24