INTEGRATED Properties Private Limited says commercial property values are set to decline in the short-term due to distorted cashflows and disrupted rental incomes owing to restricted operational activity, especially for the retail sector.
BY TAFADZWA MHLANGA
In a market report for the first quarter of 2020, Integrated said commercial property values are dependent on the rental cashflows and, as such, the organisational capacities to pay rentals will be compromised, which will affect property values.
This comes at a time when the country’s borders have been closed in a bid to curb the spread of the deadly coronavirus pandemic, which has greatly impacted on the local retail sector, which is largely dependent on imports from China.
Moreover, operations for the small retailers has been halted, with only major supermarket stores continuing to operate as they are licensed to continue trading amid the pandemic and lockdown period.
“There were no major movements in property values in United States dollar terms from the previous quarter, where property prices adjusted downwards by a 20%-30% margin as the year 2019 closed. It is imperative to note that market values are dependent on the future benefits which include right to use, occupy, enjoy and rental income. Commercial property values are dependent on the rental cashflows. As such, the organisational capacities to pay rentals will be compromised which will affect property values,” the report read.
“In this regard, property values for commercial properties will decline in the short-term as a result of distorted cashflows and disrupted rental incomes owing to restricted operational activity especially for the retail sector which is largely dependent on imports from China.”
In the first quarter of 2020, a slowdown was noticed as the quarter ended due to the COVID-19 pandemic and hyperinflation.
Although some argue that it is too early to confidently forecast the long-term impact of the virus on performance, the Zimbabwe property market has already been paralysed and brought to a halt.
“Property market fundamentals in the period under review remained weak despite government’s anticipation of an economic rebound in 2020. This is mostly attributable to the multiple challenges faced in the previous year of 2019 among them being the introduction of Statutory Instrument 142 of 2019, which resulted in the rapid erosion of rental revenues due to exchange rate-induced inflation. McKinsey & Company projected a GDP [gross domestic product] growth contraction of 3%-8% for Africa resulting in a negative growth rate -3,9% if the virus is not contained,” the report read.
This is likely to result in a substantial downturn on the Zimbabwe property market, which is already underperforming with high void rates and declining collection rates.
Rental arrears will increase, especially for buildings accommodating small-to-medium enterprises, which are already incapacitated.
Voluntary space surrenders will increase as companies try to cut on operational costs due to tight cash flows.
As production capacity in Zimbabwe remains relatively low at 30%, capacity will fall further as a result of disruptions in the global supply chain, leading to shortages of inputs.
If the impact of COVID-19 heightens, a drop in demand for industrial space will be witnessed.