The country’s property market continues to experience low demand for space, with the CBD office sector worst affected, according to Zimbabwe Stock Exchange listed entity First Mutual Properties (FMP).
FMP, however, said the retail, office park and industrial segments of the market remained resilient with steady demand.
In terms of transactions, the property owning company said the market continue to be concentrated around the residential sector.
Commercial sector transaction activity remains subdued as property owners seek to hold onto assets as value preservation strategies, FMP said in a trading update for the first quarter to March 2021.
“Development activity remains strong in the residential sector, while commercial development activity remains low due to subdued demand for space.”
In terms of property prices, FMP said pricing of space continues to migrate towards inflation and currency indexed models to preserve value.
The property owning concern noted an increase in foreign currency denominated leases
“as property owners seek to benefit from the provisions of SI 85 of 2020”.
In the outlook, FMP said the commercial real estate segment is expected to remain an occupiers market due to excessive supply of space.
It said despite expected growth in economic activity, the property sector is traditionally the slowest to react due to the nature of the asset.
“The positive outcomes to the property sector linked to GDP growth will be felt post 2021 as demand for space will be driven by any positive effects on the productive sectors of the economy,”
Rental yields are expected to remain weak due to the slow nature of price discovery of rentals, coupled by limited upside on rentals due to excess supply of space.
Recent revaluations of properties will also apply pressure to any growth in yields.
However, rental yields for prime assets are expected to remain competitive due to limited supply of quality prime commercial real estate.
With growth of the sector not yet certain, FMP said value preservation and cash flow management remains critical in the immediate to short term as the impact of Covid-19 on rentals, occupancy levels and cash flow generation evolves.
“To this end, the Group will actively seek new tenants and improve space quality in line with occupier requirements to sustain occupancy levels and earnings.”
In terms of company specific operations, FMP said the lockdown early in the year delayed rent review efforts, hindered collections and planned maintenance initiatives.
However, despite the slow start to the year, the occupancy level improved by 2 percentage points to 89 percent as deliberate efforts to improve space quality continues to yield positive results.
Collections deteriorated during the period to 57 percent (December 2020: 78 percent) as tenants were affected by the lockdown in generating income to service their obligations.
In terms of income, revenue for the quarter increased by 411 percent compared to the same period in the prior year, driven by rent reviews, higher turnover rentals and the occupancy level rising to 89 percent, mainly attributable to net lettings in the CBD office and retail sectors
“Net property income grew at a slower rate of 331 percent during the period due to reinvestment in repairs and maintenance, to improve space quality and accelerate leasing efforts.
“Investment properties at 31 March 2021 were valued at $9,663 billion following a directors’ valuation, representing a 3 percent increase from December 31, 2020.