ZIMRE Property Investment Limited (ZPI) is to offload a number of commercial properties across major Central Business Districts (CBDs) in response to falling margins triggered by an exodus of tenants.
Firm discussions with potential buyers have kicked off, said managing director, Edson Muvingi, who spoke to analysts as the listed firm reported a 15 percent retreat in revenues to US$5,7 million for the year to December 31, 2014 last week.
ZPI revenues ended the prior year at US$6,67 million.
The significant decline in turnover was an indication of the client exodus from its CDB offices by high value clients as well as deteriorating occupancy rates in the once cash spinning CBDs.
Portfolio voids climbed to 19 percent in 2014 from 14 percent during the prior comparative period in 2013.
The Zimbabwe Stock Exchange-listed ZPI said rental rates declined to US$6,59 per square metre during the review period, from US$9,16 in 2013.
Mivingi said standards in CBDs, especially in Harare, deteriorated during the period as a result of the influx of informal businesses that clogged entire streets, selling everything from rat killers to shirts and sweets, and scaring away corporate clients to the fringes of cities.
The unprecedented migration out of CBDs has sparked an erosion of rates and piled pressure on property firms to restructure their portfolios in line with the dynamics.
ZPI will be selling buildings in a portfolio that includes Fidelity Life Towers, to deal with a problem that is now dogging quoted property firms.
“There are a lot of negatives we are seeing in the market,” Muvingi told analysts after presenting ZPI’s financial results for the review period.
“We have to restructure our portfolio. We have to move out of the CBD. We have very nice buildings that are now in wrong hands. We are negotiating with potential buyers. The interest is significant. It is the numbers that we have to agree on. The economic outlook looks depressed. City congestion in terms of vending is going to get worse. That is why we want to get out of CBD.”
Analysts had warned that the influx of informal traders into the city would be catastrophic for formal businesses owning retail shops in the CBDs and for companies with offices there.
They also said the changes would have far reaching implications on the earnings and profits of listed property firms that control vast swathes of rental space in CBDs.
Muvingi’s announcements indicated how dire the situation in CBDs has become.
“Along Robert Mugabe Road as I came to this briefing, what I could hear were loud speakers (of vendors), one selling rat killer, the other selling clothes. They have automated the loud speakers and they run throughout the day. This irritates the corporate tenant. Come Thursdays and Fridays, some of the streets are informally closed; people are selling mabhero (second hand clothing). We have very nice buildings which are now surrounded by people who are not amenable to corporate operations. We have to pay VAT (Value Added Tax) for rentals that we are not going to collect, because we pay VAT in advance. We are just like banks extending loans to tenants who cannot pay,” Muvingi told analysts.
He spoke as Pearl Properties said it planned to turn office properties in the CBD into residential apartments.
The Zimbabwe Stock Exchange-listed Pearl had 57 properties under its portfolio during the year ended December 31, 2014, but said only 43 of these were generating income during the review period.
Managing director, Francis Nyambiri said in addition to defaults, voluntary office rental space surrenders swelled in 2014.
Pearl said it refocused an industrial property into retail rental space, as part of measures aimed at placating a potential crisis triggered by the sustained closure of manufacturing firms that left industrial estates empty.
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