Monday, June 14, 2021

Botswana’s Property market weakening

Botswana’s property market weakened this year, exacerbated by the disruptions caused by Covid-19, highlighting the fragility of the market and in some instances, the sluggish economy that has subdued demand.  

Property investor Letlole La Rona disclosed in its latest annual report that the domestic real estate sector showed vulnerabilities this year, with the usually resilient sector experiencing contractions in margins, high vacancy rates and slow sales.

Still, the industrial sector, which is largely underpinned by the manufacturing and logistics operations, proved more resilient than other real estate sub-sectors during the pandemic. LLR, whose property portfolio is 65 percent industrial, revealed that travel restrictions and closed borders led to increased demand in warehousing and logistics, required for stockpiling and local distribution of products.

“Industrial prime rentals continue to be within a range of P30/m2 – P55/m2, achieving prime yields of around 8.5%. The vacancy rates in the sector have held steady within the range of 1% – 2.5%,” the company said in the report.

The retail sector, comprising mostly of shopping malls, were hit hard by Covid-19 containment measures which involved an almost two months nationwide lockdown that shuttered most businesses not considered essential.

“The economic effects of the disease have seen the sector taking a knock as some retailers who were already ailing, had to face the hammer. Furthermore, rental income from the sector was hard hit as most retailers negotiated discounted rentals from landlords for the lockdown period,” the company said.

The retail sector’s woes appear to be far from over, with  major shopping malls being built across the country. “The market is about to get a supply of an additional 80,000m2 space, there could be a significant change in the negotiating power of landlords if the economic effects of Covid-19 continue to subdue consumer spending. The sector currently continues to exhibit strong rentals with the anchors still ranging between P85/m2 – P95/m2 and yields hovering around 7.5% – 8 %,” revealed LLR in the report.

The already strained office market continues to feel the pressure of new developments in the Central Business District (CBD), where many property investors and developers are racing against time to fulfil development covenants or risk forfeiting their undeveloped plots. This has led to the office sector experiencing flatline in rentals in the past years.

“This influx of space into the market has triggered market reversions upon lease renewals of most of the secondary stock, which in some instances has led to drastic rent reductions. Prime rentals continue to stagnate in the P105/m2 mark with yields hovering in the 7.5 percent region. The next tier in this segment continues to exhibit rentals ranging between P65/m2 – P75/m2,” the company said.

For the residential sector, it has been a bag of mixed fortunes. Though demand for residential houses has been muted for the past five years, there has been slight improvement in demand for middle to lower income groups of the segment. On the other hand, demand for high-end housing is still surprised, with valuations dropping down. The expensive properties were usually bought by foreign investors, and the slow uptake has been partly attributed to the amended Transfer Duty Act, which hiked the transfer duty from 5 percent to 30 percent for non-citizen property buyers. Yields in the sector still hover around 5 percent to 6 percent.

In other developments, LLR revealed that in the past five years, they have seen a trend of new residential nodes being developed in Gaborone and surrounding areas, away from the more expensive centrally located inner city areas, and as the city road networks continue to improve and supply continues to increase in the market, prime rentals and sales within Gaborone may be subdued as both tenants and buyers opt for the greater Gaborone nodes.

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