Post-Covid blues rattles real estate
A NEW report by a local investment firm shows that while the outbreak of the Covid-19 pandemic has spurred the growth of e-commerce business after the government’s enforced measures to slow down the spread of the virus, the real estate sector emerged bruised as several companies folded while others scaled down operations.
Zimbabwe announced a total lockdown in 2020 after the southern African nation reported its first fatality related to the respiratory ailment which claimed millions of lives across the globe. The measures affected international trade after most airlines halted flights while businesses shut, save for essential services which operated on restricted timelines.
According to a report by Bard Santner Investors on local real estate, the greatest hurdles to Zimbabwe’s property market are hyperinflation, currency depreciation and a dearth of long-term financing.
Bard Santner Investors is licensed and registered by the Securities and Exchange Commission of Zimbabwe (SECZim) as an investment manager.
“Most landlords are grappling with high debtor balances as many businesses have failed to consistently pay their rentals over the last few years,” reads the research note.
“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. 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. With the yield ranging between 5 and 7%, Zimbabwe ranks as the lowest in SADC.”
Unavailability of mortgages and high cost of borrowing in Zimbabwe, the report further shows, 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 (real estate investment trusts) to generate some liquidity from underperforming assets,” Bard Santner says.
Turning to office space, Bard Santner says this segment is also still nursing wounds from its fall-out with Covid-19 induced lockdowns as remote working patterns are becoming increasingly popular.
“The ongoing shift to suburban areas like Newlands, Eastlea and Milton Park is dampening the office space market in the Harare business centre for instance, and the same can be observed in other cities,” the report reads.
“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 cashflows relative to neighbouring countries that are yielding over 9% 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.”