Property market constrained due to inflexibility

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The property market is constrained due to condensed property demand drivers. The major property segments such as office, retail, industrial and residential; each has distinguished trends due to its explicit demand and supply drivers.

There is an oversupply of office space in the CBD as a result of downsizing and closure of companies, re-location of companies from busy CBD’s and high service charges in the CBD in contrast to outlying areas.

The office property market has continued to decline in occupancy levels due to increasing tenant evictions and voluntary space rationalisation leaving voids rate of approximately 60 percent.

The average rentals being achieved for office space within CBD’s ranges from US$4,00/m² to US$8,00/m² which is below regional average of US$10,00/m2 – US$15,00/m2 and suburban offices have average rentals of US$5,00/m² to US$8,00/m².

Many office towers face challenges of inflexibility in terms of their design hence tenants find the large space on offer either unaffordable or unsustainable and inconsistent with their short to medium term plans.

The industrial sector is characterised by oversupply and underutilisation of industrial space due to closure of manufacturing firms as well as underutilisation of industry capacity.

Bulawayo has been the most affected in terms of industry closure in comparison with Harare as many properties are now “white elephants”.

The fact that some industrial properties are being turned into churches clearly indicates the deteriorating production in the country.

High void levels have led to high levels of vandalism and dereliction of properties which in turn results in reduced property values.

The average rental that is currently obtaining in the market for industrial properties ranges between US$1,00/m² and US$3,00/m² depending on the size of the space.

Retailers have been facing challenges of competition from street vendors who have no rental obligation to meet. The average retail rentals in Harare ranges from US$10,00/m2 – US$15,00/m2, whilst Bulawayo and Mutare retail rentals are averaging US$10,00/m2. Trading densities remain stagnant across the board in 2016 and early 2017.

Furthermore, vacations from the properties due to evictions, abscondment and voluntary vacation have resulted in the reduction of rentals within the market.

Residential property development has been dominant as compared to commercial and industrial development which has been limited due to the prevailing adverse economic environment. Rentals for residential properties remained stagnant and some tenants have managed to secure rental reductions especially for executive houses.

Corporates have abandoned the practice of leasing houses for their executives, preferring to buy properties instead.

The real estate market is affected by the cyclical nature of the real estate industry in the economy. The future of the local property market remains positive.

An improved economy will be critical in igniting economic activity which will then improve property demand in commercial, industrial and residential sectors.

Despite the negative operating environment, property still remains the most favourable investment asset class because of its ability to acts as a hedge against inflation hence have a long term benefit. — Dawn Properties

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