Tenants are fleeing from properties in Harare's central business district, driven out by high rentals.
Faced with high void rates – the unoccupied proportion of a property portfolio – some property companies are now re-modelling their products in order to carve a niche in the small-scale and medium enterprises (SMEs) sector.
Interim financials from listed property concerns Pearl Properties – a unit of First Mutual Holdings (FMH) – and Zimre Property Investments (ZPI) last week provided an insight into the dynamics of the current trend affecting the sector.
Pearl Properties has a rich portfolio of properties in and around Harare’s CBD that include 99 Jason Moyo, Pearl House, Angwa House, Executive Chambers, Bryanston House, The Colonade, Arundel Office Park, ReNaissance Office Park, 35 Birmingham, 4 Conald Road Graniteside, 65 Beverly West, George Square, 51A Steven Drive, Msasa Lot 3 Block MM, Ardbennie, 59A Steven Drive, 58A Steven Drive, Advanx Building and Old Broadcasting House.
The company’s managing director, Mr Francis Nyambiri, indicated last week that occupancies at its properties had slowed to 70 percent in the year to June 2015 from 80 percent a year earlier.
He also noted that 51 percent of the central business district (CBD)’s office space was vacant during the first half of the year.
As void rates continue to rise, Pearl Properties has since engaged the Harare City Council to change the land use of some of its properties from commercial to residential properties in order to improve occupancies. However, there has been inordinate delays from the council to approve the move.
Plans are also underway to subdivide industrial properties into smaller units that can easily accommodate SMEs.
“Over the past six months, we have been trying to sensitise the city council on the opportunities but town planning schemes are rigid. There is not much work done on this except for consultations.”
But during the company’s results briefing in Harare last week, Mr Nyambiri said: “As a business, residential is not our area, we are into commercial business and we will leave those that want to pursue residential to do that.”
It is the office space in Harare’s CBD that has been affected the most by voids. Most real estate businesses are presently recording high defaults, increase in evictions and voluntary space surrenders.
As a result, the average rent per square metre in the CBD has since been reviewed from US$11 to S$10. In the January to June period, Pearl Properties reported that tenant arrears had risen to US$2,6 million from US$2,3 million a year ago. But as the business changes tact, new office and industrial products for the SMEs will be introduced early next year.
“We are working on something that we will bring into the market. We are trying to create an incubator for small to medium businesses,” Mr Nyambiri told The Sunday Mail Business in an interview last week.
“Our target is those who are able to get credit from banks because we want to leverage on that and be able to give them space at a competitive price.”
While demand for office space in the CBD continues to be subdued, suburban retail space and office parks have remained strong. Market watchers believe occupancy levels in the CBD naturally decline as tenants are looking for cheaper options available outside town.
“The economy is not doing well and the sector that is affected is CBD office,” explained Mr Nyambiri. To retain tenants, the property company committed US$142 000 to spruce up its properties, an increase from US$73 000 that had been earlier earmarked for the project.
The same challenges affecting Pearl Properties are also the same challenges plaguing ZPI.
ZPI’s chairman, Ambassador Buzwani Mothobi indicated last week that “there was a further decline in demand for real estate products and services with the property market experiencing an increase in voids”.
“Increasingly, tenants continue to fall behind on their rental payments and a number have either reduced the space occupied or opted to terminate their leases. As a result, rental revenues have continued to decline,” said Ambassador Mothobi.