Sluggish economy weighs on Zimbabwe’s Real Estate Market

Sluggish economic taking a toll on Zimbabwe’s Real Estate Market (Photo: Skyline of Harare CBD)

Zimbabwe has been facing political and financial turmoil for more than a decade, derailing the government’s ability to function and respond to crises, adding pressure to the country’s real estate sector.

A recent Economic Report for Africa mentioned that Zimbabwe is now ranked among the top 10 economic performers in Africa. While this is good news, what does this mean especially to those South African retail companies that are looking into investing in the country.

A recent trend has shown that most retailers are starting to pay more attention to store growth to both South Africa and Sub-Saharan Africa. For a long time some of these companies have been shunning opening outlets in Zimbabwe, mainly because of the economic instability and the uncertainty associated with the country.

The adoption of the Greenback has brought about a level of stability and Zimbabwe will undoubtedly attract a few suitors in the retail sector over the next few years or even months.

Office Market
The take-up of Office space has been poor as a result of the depressed economic climate, according to Knight Frank Zimbabwe.

Occupiers are struggling to meet rent and service charges, and the levels of arrears are generally high. Voids have increased, in some buildings to over 30%. More than a year after it came on stream, the 12,000 sq m of office space in the Joina City development in Harare remains over 50% unlet.

Two significant office developments, the Celestial Park and the Old Mutual project, with a combined lettable area of 26,000 sqm, are currently underway along Borrowdale Road and should be completed within the next twelve months. Property investment activity continues to be restricted by tight liquidity conditions, although notable recent office transactions have included John Boyne House (4,000 sq m), which achieved US$4.7 million and Star Africa House (2,000 sq m), sold for $3.55 million.

Retail Market
Retail space remains in high demand, both in the CBD and suburban locations. There has been an uplift in retail prime rents for new lettings in Harare of about 60% during 2012, but the sustainability of the achieved rents is doubtful in an environment of weak consumer spending.

The Mall of Zimbabwe, a major new development with 68,000 sq m of retail space, is due to see construction commence in early 2013, with completion slated for 2014. With an estimated cost of US$100 million, it will be the single largest private property development ever in Zimbabwe. A notable recent investment transaction is the sale of the Pomona Shopping Centre, which changed hands at a reported price of US$7.8 million, giving a yield of 8% on market rent.

Industrial Market
Demand for Industrial space has reduced in recent years, as Zimbabwe has become more of a consumer of imported goods than a manufacturing country. Void rates are increasing and rents are depressed. Tenant viability is questionable in the current difficult economy, putting at risk the security of income streams. Industrial investments are considered the least attractive of all sectors and the recent sales that have taken place have been entirely for owner-occupation.

Residential Market
The absence of long-term mortgage/loan financing has restricted residential market activity. Some financial institutions have been able to secure external lines of credit to support mortgages for private purchases, but the secured loans have been for relatively small amounts over short periods, e.g. 10 years at rates of 15-18% per annum, thus making them expensive for borrowers.

Nevertheless, the market has seen price increases of up to 25% during 2012. The rental market remains weak because of low disposable incomes.