Are depressed occupancy levels the new normal?
FOR many tenants, the last week of each month presents headaches as they jostle to raise cash to pay their rentals.
With the current unstable economic environment, one can safely say landlords for both commercial and residential properties can no longer confidently rely on their tenants to pay rentals on time. Some tenants are in arrears for up to three months.
An increasing number of tenants are failing to pay rentals due to the worsening liquidity crunch and joblessness, while others are re-negotiating existing contracts for downward rental reviews.
Failure to pay rentals has also been attributed to companies paying employees past their salary dates, and some tenants taking advantage of these factors and deliberately delaying to pay rentals while servicing other debts or attending to some projects they deem more important at the time.
According to Bard Real Estate’s rental report for 2015, property voids nearly doubled from an average of 15 percent in 2014 to between 25 and 30 percent in 2015, with rates in Harare’s central business district (CBD) offices as high as between 50 and 60 percent.
There is an oversupply of offices in the CBD as a result of downsizing, closure and re-location of companies from busy CBD areas to office parks and cheaper converted residential units especially in Harare. The relocation has been attributed to high service charges in the CBD in contrast to outlying areas.
For residential areas, many tenants have been requesting their landlords to have their rentals revised downwards. Landlords whose tenants are moving out of their residential properties are finding it difficult to find tenants willing to pay the same amount of rentals as the previous tenants.
In many cases the new tenants are paying much less than the previous occupiers due to economic hardships.
Giving a trading update at the company’s annual general meeting over a week ago, Pearl Properties’ managing director, Francis Nyambiri, said the company recorded a five percent decline in revenue in the four months to April as rental income “remained under pressure due to depressed occupancy levels”.
“Revenue for the four month period at US$2,7 million was 5,1 percent lower than last year’s US$2,9 million. Occupancy levels have taken a hit, declining to 73,1 percent from 77,8 percent in 2015, reflecting the difficult market we are operating in. Some tenants requested for rental reviews while others downsized their space,” said Nyambiri.
Net property income was one percent ahead of last year at US$2,2 million, against US$2,1 million in prior year.
He said rent arrears were at US$2,5 million, from US$2,52 million the previous year as the group was more efficient in collections.
“We have been able to collect our money during the period under review resulting in a cash position of US$1,8 million compared to US$1,7 million in 2015,” he said.
Nyambiri said the company had worked hard on administration expenses in light of the declining revenues. As a result, administration costs were down 3,8 percent on last year.
During the period, there were no revaluations of investment properties. Profit before tax was at US$1,5 million compared to US$1,3 million during the same period last year.
Pearl Properties’ trading update is a reflection of the whole property industry’s rental segment.
The industrial sector has been characterised by low industrial utilisation capacity, disinvestments, closure of operations, relocations and disruptions on production.
The retail market has relatively performed better than office and industrial markets, although the effect of the informal traders on sales has not been quantified yet.
For prime retail space, there is wide spread decrease of retail rates throughout the country, mirroring the economic performance.
Most sales of residential properties were largely for small stands and in the high density suburbs, with a few sales being registered in top-end properties.
Bard said residential properties had seen a rental decrease of between 25 to 40 percent last year due to liquidity challenges and large numbers of unoccupied houses have been noted due to lack of tenants.
The economic crisis is now affecting both the poor and the rich. There are increasing legal costs in the property sector due to debt collection and evictions, and these are on top of service charges such as rates and water, infrastructural decay and dilapidated buildings in the CBD.
A fortnight ago, property investment and development firm, Mashonaland Holdings, reported a five percent decline in revenue to US$2,8 million in the half year to March 2016 due to increasing void levels and downward rental reviews.
In the period under review, the group’s rental yield fell to six percent from seven percent in prior period due to declining income against a fixed portfolio valuation.
“Total occupancy fell marginally to 75 percent from 76 percent that was reported last year,” Mashonaland Holdings chairman, Ron Mutandagayi said.
“The rent collection rate declined to 68 percent from 72 percent reported at the end of last year. The declining collection rate and occupancy levels mirror the deteriorating economic environment,” he said adding that tenants are finding it difficult to fulfill their lease obligations.
The increase in property voids reflects the nature of the country’s environment which is presently unstable.
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