Some segments of the property sector have remained resilient during the first half of the year despite the challenging economic environment worsened by Covid-19 pandemic.
Prime residential and retail segments have seen up to 25 percent discounts on rentals pegged in USD.
A market update by Knight Frank, shows that there were no voids recorded in the retail side during the first six months of the year as rentals remained stable at around US$15 per square meter per month, while yields were also stable at around 6 percent and 7 percent.
Rentals in this segment also went down as landlords offered discounts for USD denominated payments.
“As a way to ensure stable income, landlords offered discounts to tenants paying in hard currency leading to USD rents declining marginally.
“In the period under review, no voids were observed as tenants continued to retain a positive outlook despite the current economic downturn,” said Knight Frank.
During the period under review, prime residential rents declined by between 20 percent and 25 percent on average. Rents on one to two bedroomed units, however, were not discounted due to an increase in demand in these units.
Said Knight Frank: “In order to retain a steady flow of income, landlords were forced to accept up to 25 percent USD discounted rents.”
However, rentals paid in local currency for both residential and retail segments remained unstable due to the weakening currency. Landlords pegged rents to the parallel market exchange rate, which resulted in rental reviews almost on a monthly basis in line with the parallel market fluctuations of the exchange rate before the situation stabilised on the back of the introduction of foreign currency auction system on June 23 this year.
Knight Frank also indicated that demand for residential property for sale softened in the first half of 2020 due to the increased shortage of USD which were mainly preferred by sellers as opposed to local currency payment.
“This was further exacerbated by the non-availability of mortgage finance in USD.
“As a result, there was a limited number of transactions in the first half of the year. In terms of prices, local currency prices remained largely unstable as they responded to daily movements in the exchange rates while USD prices were generally stable,” said Knight Frank.
The office space remained largely depressed with central business district (CBD) buildings recording voids. Demand also remained relatively subdued worsened by the Covid-19 pandemic as businesses implemented the social distancing requirements and working from home except for those in the essential services sector.
Property firms such as Zimre Property Investments (ZPI), have already indicated plans to convert CBD properties to other uses like residential as well as leisure and hospitality as demand for office space remains weak.
Office rents also declined sharply in real terms as value of the local currency continued to decline. Tenants also sought rent relief measures from their respective landlords with owners granting discounts mainly to USD rent payers as opposed to the local currency.
Like other sectors, the general performance of the economy will have a bearing on the property sector. In the short to medium term, the property market is likely to remain subdued with limited investor interest due to the current economic conditions induced by Covid-19 among other factors.
However, stability on inflation and currency on the back of a successful foreign currency auction system, will be advantageous to the property sector, players said.