Demand for office space suppressed
But supply likely to increase
Commercial real estate market rentals will face downward pressure as the supply of office space is surpassed by the demand.
According to Bank of Botswana Financial Stability Report, the supply of office space is likely to increase further, given the ongoing construction projects and planned office buildings at the Central Business District ( CBD).
“These will further exert downward pressure on rentals, especially in the decentralised office locations”.
The report highlighted that working- from- home practices adopted by many companies due to COVID- 19 protocols also have the potential to suppress demand for office space, and consequently rental market prices.
This notwithstanding, vulnerabilities from the real estate sector, such as potential Non- Performing Loans ( NPLs), posed minimal risk to financial stability during the period under review, but prospective developments require continuous monitoring and assessment
Figures show that commercial lending poses limited risk to financial stability as credit to commercial real estate decreased marginally from P4.9 billion in December 2019 to P4.8 billion in December 2020 and further to P4.5 billion in March 2021.
At these levels, the proportion of commercial real estate loans to total loans remains low and has averaged seven percent over the five years to 2020.
“As such, and against the global threats arising from commercial real estate loans, commercial real estate lending poses minimal risk to domestic financial stability”.
However the level of nonperforming loans in the sector remains moderate, constituting 3.9 percent of total commercial real estate loans in March 2021 compared to 4.2 percent March 2020.
“There are, however, some concerns about concentration risk in the real estate sector, with most loans at about 90 percent originating in Gaborone and surrounding areas,” the report noted.
One of the leading property investment companies, PrimeTime Property holdings, stated that it experienced increased rental income last year but growth was below expectations as concessions had to be made due to COVID- 19 disruptions.
The company stated that it is busy completing tenanting its office and retail space in its new development in Gaborone, Block 10. The group anticipates building more office spaces in the new CBD this year.
RDC Properties also pointed out that the risk of negative rental reversions and increased vacancies remains very real as the over- supply of commercial space continues.
In his comment, CapitalGro which is a subsidiary of RDC Properties Chairman, Gary Fisher said they have used this period to consider each of their properties strategically as it relates to their future use.
During 2020 RDC Properties rental revenue is down only 13.7 percent to P131.6m, of which 55 percent was receipted in Botswana and 45 percent in South Africa.
The decrease in revenue was a combination of the impact of COVID on the hospitality business where revenue decreased by P28.4m, and the rental deferment/ rebate packages agreed with commercial/ retail tenants.
According to the latest Riberry Report of 2020, the residential rental market weakened in the fourth quarter of 2020, compared to the third quarter of 2020, due to weaker demand for both the upper and middle- end properties.
The report further highlighted that the lower- end market was resilient, with increased demand and supply amid the difficult circumstances imposed by the COVID- 19 pandemic.
The average price for residential properties sold in the fourth quarter of 2020 decreased by 17.4 percent to P720 000 compared to the previous quarter, reflecting the lower number of high valued properties traded in the quarter under review.