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Nelson Gahadza Senior Business Reporter

Zimbabwe Stock Exchange (ZSE) listed property company, First Mutual Properties (FMP), expects full recovery of productive sectors of the domestic economy to spur demand for space within the property market.

The company, in a trading update for the half year period to June 30, 2021, said during the period under review, space absorption remained subdued with continued supply demand imbalances.

“Despite the Covid-19 pandemic and a gradual shift to a hybrid of remote working and office presence, corporates have maintained leases,” said FMP chairman Mr Elisha Moyo.

He said the excess supply of space was mainly historical space redundancy, with the areas worst affected being the central business district (CBD) offices, high density suburban shopping centres and specialised industrial sectors.

However, he said demand for retail warehousing, light industrial properties and office park properties remained strong.

Mr Moyo also said price discovery of rentals continued, with rentals predominantly indexed to foreign currency, as landlords seek to preserve value of cash flows. He added that transaction activity had continued to be subdued, as property investors hold onto real estate to preserve value.

“There are limited options to recycle into new assets as the current stock in the market has relatively aged requiring significant capital to upgrade. Demand for quality real estate remains high, with investor appetite skewed towards real assets as high inflation expectations remain,” Mr Moyo noted.

He indicated that commercial development activity was also still limited due to the supply demand imbalances with the majority of development activity remaining in the industrial  or  retail warehousing sectors, while limited owner occupied office park style buildings were on-going.

“The residential sector development activity remains strong, mainly supported by the informal sector of the economy and the Diaspora community,” Mr Moyo said.

He said the group would continue to scout for opportunities within the market to further grow and differentiate the property portfolio, with additional strong emphasis on improving the performance of the existing property portfolio.

According to FMP, the year opened under hard lockdown measures triggered by the steep surge in Covid-19 cases, while the general business environment remained challenging.

Despite the challenging environment, gross domestic product forecasts for the year have been revised upwards to 5,9 percent by multilateral organisations premised on a bumper agricultural season, better commodity prices, policy consistency, money supply and inflation management; with the latter declining to 106 percent at the end of the period compared to 737 percent at the same time the prior year.

Mr Moyo said despite the challenging macroeconomic environment, the group’s inflation adjusted net property income after administration expenses grew by 11 percent to $43,14 million compared to $38,81 million in 2020 driven by growth in inflation adjusted revenue of 45 percent to $204 million.

“Revenue predominantly comprises rental income. In historical terms, revenue grew by 369 percent ahead of inflation at 106 percent, driven by the repricing of rentals during the period, with the focus on indexing rentals to foreign currency in line with the provisions of Statutory Instrument 85 of 2020,” Mr Moyo said.

He noted that rental income growth had been sustained by a stable growth in the occupancy level, closing the period at 89,48 percent compared to 88,52 percent in the same period in 2020.

In terms of developments, Mr Moyo said the group is at pre–construction stage of the Arundel Office Park extension, with the design development of the architectural plans completed and now undertaking environmental impact study before seeking the requisite approvals by the local authority ahead of commencing the tendering process.

“We expect the tender process to commence and be completed in H2 2021 with site mobilisation in the fourth quarter 2021.

“The project implementation has been impacted by the Covid-19 pandemic, however, the necessary plans to ensure the project is expedited are in place once approvals by the local authority are granted,” he said.

He said the group continued to scout for opportunities within the market to further grow and differentiate the property portfolio, with additional strong emphasis on improving the performance of the existing property portfolio, and sustainably managing operating expenses.