Business

Prime property rentals sink to ten-year low

Sustained new developments in the CBD have knocked down rentals around town
 
Sustained new developments in the CBD have knocked down rentals around town

The prime rent, usually quoted in US dollars, is defined as an average rent of the top 3-5 percent of all lettings in each submarket.

According to the Knight Frank Africa 2015 report, the supply of office space in Gaborone currently outstrips demand due to sustained developments, which have largely focused on the new
CBD.

“Demand for offices has waned as a result of a lack of new market entrants, the contraction of existing businesses and government belt-tightening. Rents have softened across all office nodes, with prime rents reaching their lowest level in ten years,” reads the report.

The report, however says that little of the available space meets the requirements of international corporate occupiers.

 Over the medium term, rents may remain under pressure, as demand is likely to stay muted and existing tenants will seek to negotiate lower rents on the renewal of their leases.

According to market analysts office rentals in brand new CBD offices had peaked at P120 mark around 2012/2013 but have since softened with landlords accepting rentals of around P85 per square metre.

“Currently there are plenty of office vacancies in the CBD for example at Masa Centre. I am not sure who will take up all new space coming onto the market in next 12 -24 months as landlords in CBD are now accepting lower quotes up to P85 per square metres. Fairgrounds, however remain stable at P90 - P100 for the best space,” said a market analyst. 

While rentals for prime office accommodation have taken a knock, the secondary markets such as Commerce Park and Main Mall, have been hit even harder, with the lack of proper parking space adversely affecting demand. Rentals in the secondary markets have fallen too as little as P35 per square metre from between P50 to 75 in last three to four years. Ground floor retail space in the Main Mall however still remains attractive with rentals of as much as between at P120 - 150 per square metre.

According to the report, the prevailing low inflation and interest rates environment have supported stable prime initial yields, and thus maintained healthy capital values despite the dip in rentals.

Among the buildings completed in the past few years which have contributed to the oversupply include, Exponential, iTowers, the Square, Masa Centre, FNBB’S First Place, Twin Towers, Morojwa and Mowana Mews, the High Court and the Prime and Barclays Plaza.

While speculative building on the part of developers has driven some of the construction, the developments were also forced by the restrictive covenants placed on owners of CBD plots that require development within a set time frame, thereby creating an artificial surge in office completions.

Office space stock in the Central Business district has risen by 800 percent in the past three years, on the back of an aggressive construction boom by both speculative investors and pre-let and owner occupiers leading to an over supply.

In 2011, there were only 20,000 square metres of available office space in the CBD rising to 80,000 square metres in 2012.

The stock rose to 120,000 square metres in 2013 before further increasing to about 160,000 square metres last year.

Other buildings expected to be complete in the next 24 months include the Zambezi Towers, Central Square and the Smart Partnership buildings, which recently got an Environmental Impact Assessment (EIA) nod after a year’s delay.

Retail market

According to the report, Gaborone is likely to realise a saturation in the retail market as the city continues to see considerable retail development, with centres such
as Airport Junction, Rail Park Mall, Sebele Shopping Centre and Northgate Mall opening in recent years.

“Given the relatively small size of Gaborone’s population and catchment area, there are concerns that an oversupply of retail space is looming. To date, the retail sector has remained remarkably resilient, with all of Gaborone’s major retail centres experiencing healthy demand for space and low vacancies,” read the report.

However, Knight Frank says that the heightened level of development may lead to a saturation of the retail market, and put downward pressure on prime rents.

South African chains have a strong presence in the market, but Botswana’s biggest retailer is the local supermarket chain Choppies, which has grown rapidly in recent years and is expanding into other countries in the region.

Industrial market

Analysts say that demand for industrial accommodation has remained buoyant over the last three years on the back of the robust performance of the logistics and manufacturing industries.

According to the report, demand is currently strongest for smaller starter units of up to 200 square metre and bigger units of over 1,500 square metres. Relocations, start-up businesses and firms seeking high-tech quasi-office accommodation have generated demand. The sector has enjoyed steady-to-strong rental growth in recent years, which has encouraged investment and development activity. However, Knight Frank warned that the significant volume of new space in the pipeline could create excess supply and limit rental growth in the short term.

Residential market

The Gaborone market is currently characterised by high demand for residential property and limited stock. According to the report the current housing supply does not sufficiently meet the demand pressures emanating from population growth, increased numbers of single family households, inward migration and the growing student and elderly populations.

“There is a big gap in the market for low-to-medium cost housing, despite the increased prevalence of sectional title ownership,” reads the report.

The prime sector is said to be currently in equilibrium, as there are only a small number of affluent individuals able to afford the sophisticated product available at the top end of the market.