Last Updated
Friday 21 November 2014, 15:04 pm.
New CBD threatens office space market

Despite a high demand of office space in Gaborone, a property analyst has warned that if government goes ahead with its covenant development plan, the market will crush.
By Staff Writer Mon 24 Nov 2014, 01:51 am (GMT +2)
Mmegi Online :: New CBD threatens office space market








The plan requires all plots in the new Central Business District (CBD) to be developed within two years. "In practice, it cannot possibly work," said Stephen Wyatt, a director of a leading global property consultancy, Knight Frank.

"If everyone started construction as they should, the market will crush," he warned.
The CBD is already sprawling with developments such as the Square Mall, the soon to be completed Square Tower, SADC House and the Industrial Court.

Wyatt said with every plot in the new CBD going to have between 8,000 and 10,000m2 of office space, the migration of tenants from areas like the Main Mall, Fairgrounds and Kgale Mews will have a negative impact on the already small market. "It does not make sense to develop all those plots at the same time. The market can only take a certain number of developments."

He advised government to re-look at the covenant because usually CBD's take about five to 10 years to develop rather than the two years.

Wyatt, however said at the moment, demand is outstripping supply in the office space market and has resulted in rental increases in the past two years.

"If there is too much development, everything will be reversed because there is a thin line between demand and supply," he said. The Knight Frank 2009 Global Real Estate Markets Review say that a lack of available space in all sectors in Botswana has driven rental growth in major towns. The review shows that there is demand for approximately 50,000m2 of office space in the market, but the development pipeline delivered just 10,000m2 in 2008. About 15,000m2 is expected in 2009 and 20,000m2 in 2010.

"As a result of this lack of stock and subsequent rental escalation, there was a tightening of yields across the market in 2008," the review said. Wyatt said the office space market is to remain buoyant in 2009 and 2010, as the take-up in terms of occupancy is very good on ongoing developments.

However, the market review noted that occupier demand might ease as public sector requirements are anticipated to reduce in 2009 as a result of government spending cuts.

Already completed developments this year include Fairgrounds Office Park Phase II, developed by Bifm and GH Group's The Square Tower at the new CBD, which are already fully let.

"That is a very positive sign, especially that these major developments are attracting good quality tenants," Wyatt said. Government with 75 percent occupancy leads the demand while the private sector takes the 25 percent office space available. There is another major ongoing development of Millennium Office Park in Kgale Mews, which is scheduled for completion at the end of 2009. Other ongoing developments at the new CBD scheduled for completion in 2010 are Masa Towers, which will incorporate a hotel (Holiday Inn) and office construction by Exponential, to be owned by local investors.

Some of the companies have been allocated plots and are planning to build their headquarters at the new CBD. These  include FNB Botswana, Orange, Botswana Housing Corporation (BHC) and Water Utilities Corporation.

In addition, Bifm will next year start Fairgrounds Office Park Phase III development while Botswana Development Corporation (BDC) is working on a major office park at a yet to be disclosed area in Gaborone. There are other smaller projects by various developers.

Wyatt said developers in Botswana face a dilemma because unlike other markets, tenants do not pre-let office space. Hence developers take risks by relying onresearch and speculative building.

Wyatt advised that the city council should not be left behind in infrastructure developments like roads to ease traffic congestion especially at the new CBD. With the global demand for office space down, as international companies reassess their property requirements, the Botswana market seems to be taking a different path.  In most major markets, vacancy rates have started to rise and prime rents are falling.



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