Zimbabwe's changing spaces
Blue chip companies are moving out of Harare's central business district into outlying suburbs as retailers dominate office space.
At Joina City, central Harare's prime mall, its four floors full of shops are bustling with shoppers hopping though trendy stores, but only half of its 12 000m² of office space is occupied.
It is a picture seen across much of Harare's central business district: as the economy becomes ever more dominated by retailers, office space lies empty, whereas retail space is booming. The result is a marked shift in the profile of tenants in the central business district as retailers demand more space, pushing other businesses out of the centre of the city to office parks on the northern verges of the city.
"Retail space remains in high demand, both in the CBD and suburban locations. There has been an uplift in retail prime rents for new lettings in Harare of about 60% during 2012, but the sustainability of the achieved rents is doubtful in an environment of weak consumer spending," says leading agents Knight Frank.
Take-up of office space has been poor, Knight Frank reports, and tenants are struggling to meet rent and service charges. "Voids have increased, in some buildings to over 30%," it says.
Larger property investors are now looking outside the city centre for better-quality tenants and rentals. Old Mutual, the country's largest property owner, continues to look outside the city and is building a new office complex along Borrowdale Road in Borrowdale, an affluent area just outside Harare.
Just down the road from the Old Mutual building is the site of the proposed Mall of Zimbabwe, a large mall and office park. According to investors in the project, more than 60% of the leases with tenants have already been signed. The project will provide more than 68 000m² of mostly retail space, much of which has been taken up by South African retailers. Valued at $100-million, property agents say it is the largest single private property development so far in Zimbabwe. Construction had been expected to begin this month.
Rush for retail space
According to agents, another investor recently bought Pomona, a shopping centre in Borrowdale, for $7.8-million. Sugar company StarAfrica sold its headquarters in the same area for $3.55-million.
Although Knight Frank is cautious of how long the rush for retail space in the Harare city centre can last, Old Mutual, which has the largest property holdings in the city centre, is more optimistic about the economy, which it believes will sustain retail property.
"The central business district retail sector property is arguably the most thriving property sector in Zimbabwe, partly due to macroeconomic recovery strides supporting increased consumer spending," Old Mutual says.
With consumer spending rising, property owners are looking to attract retailers and are charging higher rent. Retailers, from large supermarket chains to small, independently owned stores, now dominate the city centre. "The future outlook suggests an increased redistribution of tenants, with more client-interfacing tenants filling up CBD retail, while less front- office-orientated tenants fill up the suburban office parks as more players in the respective sector enter the market," says Old Mutual.
But estate agents paint contrasting pictures on the state of the market. Though retail space is booming, there is some worry over the rate of rent defaults. The Estate Agency Council of Zimbabwe says the rate of rent defaults has risen to 60%, well above the 20% that is considered safe.
Quality of tenants
"The quality of tenants has significantly changed since the turn from the Zimbabwean dollar to the multicurrency system," the council's chairperson Oswald Nyakunika says. "We lost quality tenants during the Zimbabwean dollar era. But we are now seeing new blue-chip tenants and survivors of the crisis." Pearl Properties, one of the country's largest property owners, recently announced it was opening a new real estate agency to respond to growing demand for quality properties from some of its clients.
Like other investors, Pearl Properties had to look outside the city for growth. It got better returns than it expected when it refurbished a mall in Greendale, where it made Pick n Pay its anchor tenant. Managing director Francis Nyambiri this week said profit in the first four months of this year was 4.64% ahead of last year, and 9.69% above the forecast. Still, the company's expenses are up about 33% as it looks to refurbish some of its properties to attract more quality tenants.
But, like many property investors, the company has had to write off a lot of debt owed by tenants who are failing to pay rent. Still, the company is not giving up on the city centre. It is spending $50-million on a new taxi rank and mall in central Harare.
It is a strategy many investors are following: buying properties and refurbishing them for better tenants. It worked for Pearl, which saw the value of its investment properties growing 9.6% to $120-million last year due to refurbishments and increased rental income.
Foreign traders without licences to be expelled
If Empowerment Minister Saviour Kasukuwere has his way, thousands of foreign-owned retailers will have to shut down — from the bargain clothing stores in downtown Harare to the $100-million shopping mall that is being built uptown. The government recently published a notice giving all foreigners in the retail sector six months to clear out, saying foreigners will no longer be allowed to operate in "sectors reserved for locals", one of which is retail.
These sectors range widely from primary production of food and cash crops, transport, retail and wholesale trade to bakers, advertising agencies and even hairdressers.
All businesses in these sectors have been given six months to get a compliance certificate from the National Indigenisation and Economic Empowerment Board, which oversees implementation of the empowerment regulations. According to the notice, foreign-owned companies will not be licensed. But it is hard to see how Zanu-PF could allow expulsions.
A mass expulsion of West African traders from Harare appears unlikely for a government still keen on having friends. And, if it follows the law to the letter, the planned Mall of Zimbabwe — the largest private property development by one investor in the country — will have to stop construction. The mall, according to developers, has already signed up much of its store space to large South African retailers looking to jump in on what some see as a consumer spending boom.
The law would also have to shut down the Long Cheng Plaza, a large shopping mall built by Chinese company Anjin, which has a joint venture with the military in the Chiadzwa diamond fields.
"Any person who operates a business referred to [in the law] without an indigenisation compliance certificate with effect from January 1 2014 shall be guilty of an offence and liable to a fine not exceeding level four, or to imprisonment for a period not exceeding three months or to both such fine and such imprisonment," the notice reads.
Bargain clothing stores face closure
If the law is implemented radically, many of the bargain clothing stores that dominate downtown Harare will have to shut down. This would pander to pressure from Zanu-PF-aligned groups, among them the Affirmative Action Group and Upfumi Kuvadiki, an outfit that held demonstrations against West African store-owners in last year.
But though Zanu-PF may curry favour with those groups with the regulations, it is unlikely to actually implement the law in its radical form, according to the head of one of the country's largest retailers, who declined to be named. "In its present form, the law would make it illegal for Pick n Pay or Edgars to operate in Zimbabwe, even if their local operations are majority owned by locals. I do not think they [the government] want that," he said. "From discussions, it's clear [they want] to appear to be caring for local small businesses."
But Zweli Lunga, general manager for compliance at the National Indigenisation Economic Empowerment Board, said the regulations were meant to bar foreigners from the targeted sectors.
"We will only give indigenous Zimbabweans [a compliance certificate] because these are sectors we feel do not require huge capital investments. Foreigners who apply will be turned down and we will ask them to close shop," said Lunga. The law has some oddities; according to Lunga, a foreign-owned restaurant that does not serve local food could be exempted.
This would likely save the many Chinese restaurants in Harare. Zimbabwe National Chamber of Commerce president Oswald Binha said his group backs the move, but cautioned against rash implementation. "As much as we don't want to destabilise the economy, we welcome the move and we are behind the government in implementing it. We must do it in a manner that does not cause chaos."