Property market in decline
The property market in Botswana has experienced a noticeable decline in year-on-year yield or return on investment of all the property asset classes, a 2019 quarterly report by Vantage Properties has shown.
Projections from the Botswana 2019 Annual Property Report show a decline in ungeared total returns from 19.5 percent in 2017 to 10.5 percent in 2019, the 4th quarter report, authored by Loyd Sungirirai, the MD of Vantage Properties, further reveals.
While total return was underpinned by a relatively stable income return of 11.4 percent, capital growth slowed significantly to 3.0 percent from 10.2 percent in 2014. According to Sungirirai, these numbers are not surprising, given the slowdown of the country’s economy coupled with the tightening of government budget, as well as the oversupply of properties, especially in the office and retail space.
Sungirirai says the top performing sector for 2019 was industrial property, which delivered a total return of 20.5 percent on the back of solid capital growth of 4.5 percent and income return of 12.5 percent. This is because demand for industrial properties has been on the high, boosted by the growth of the logistics and manufacturing industries, especially the smaller starter units of up to 200m2 as well as bigger units of over 1,500m2.
The sector has enjoyed steady-to-strong rental growth in recent years, which Sungirirai says has encouraged investment and development activity. According to the property expert, industrial prime rentals currently stand at P45/m2, with yields at 9 percent. But despite its seemingly healthy demand, especially in Gaborone, development in the sector has been surprisingly low, with only 15,000m2 in GLA entering the market recently. “Although industrial rental growth slowed to 3.3 percent, a 2.7 percent vacancy rate was recorded, reflecting the robust fundamentals underpinning the sector,” Sungirirai says.
Elsewhere, the expert notes, the retail sector continued to display strength, leading in the testing times. As a developing economy, Botswana is attractive for more and more offshore companies, and the stable pula will also positively affect investors and industrial tenants that occupy these premises.
Consumer spending has increased dramatically over the past years. Bigger shopping malls with a strong tenancy mix have been expanding, as seen with the expansion of Game City, Rail Park Mall and Airport Junction, although Sungirirai emphasises that the secondary shopping malls, have not seen any significant expansion.
“The presence of more shopping malls, however, is impacting on rental yields as the new developments are simply “recycling” existing tenants as business is simply shared from the same basket without any significant corresponding increase in new customer base,” Sungirirai observes.
The good news, however, is that vacancy rates in the sector are low, which should sustain some growth in the short to mid-term as existing contractual lease escalations are realized, he notes. Sungirirai writes that rentals in the sector are testament to its resilience with the anchors still ranging between P80-90/m2 and yields at 8 percent. “Notwithstanding the amount of space coming into the market, the market continues to enjoy good occupancy rates and inflation beating escalations,” he says. “The occupancy rates within these malls remain relatively high.”
The retail, office and residential sectors all delivered between 12% and 13% total return.