According to Seeff Zambia, key factors which impact the Lusaka commercial office space market include an increase in office space supply, relocating of offices, reducing office rent, depreciation of the Zambian Kwacha against the US Dollar, and the high cost of borrowing.
Macro-Economic Factors Affecting the Property Market
Global and domestic economic performance has an effect on the property market. Inflation is around 9.9% (as at late 2022) and will only return to the 6-8% target range in early 2024. Debt restructuring though is progressing and expected to positively impact the budget, market sentiments, and mitigate some of the upside risks to the inflation outlook.
The commercial bank lending rate is currently 25.2%. The Zambian Kwacha has depreciated against the US Dollar and now stands at ZMW18.36 to USD1. Office rent is expected to continue adjusting downwards due to increasing oversupply of office space, lower demand, and depreciation of the Zambia Kwacha.
Commercial office space market in the city of Lusaka
Lusaka is the capital city of Zambia and is characterised by a commercial centre in the heart of the city with old high rise commercial buildings providing both retail and office space. Major high rises include Fideco House, Nkwazi House, Electra House, Indeco House, Luangwa House and Godfrey Chitalu House.
Adjacent to the CBD are areas rezoned from residential use to mixed residential and commercial use and these include Fairview, Rhodes Park, Longacres, Prospect Hill, Mass Media, Northmead and Kalundu.
The rezoning is attributed to outward expansion of the CBD. The CBD has limited parking space and the road network is highly congested especially during peak hours. There has been an increasing development of high rise office buildings in mixed use areas as banks and private firms have opted to relocate their offices away from the congested CBD.
Commercial Banks such as First National Bank (FNB), United Bank of Africa, Ecobank, Stanbic Bank and First Capital Bank have in recent years relocated their head offices to mixed use areas while head offices are under construction for Absa and Indo Zambia Bank.
The move away from the CBD has led to an increase in vacancy rates in commercial buildings in the CBD. At the same time, demand for residential houses located in mixed use areas has increased. These houses are sought for offices or demolished for development of office buildings.
The increasing supply of office space and depreciation of the Zambian Kwacha has had a negative impact on office rental rates, and landlords are being compelled to renegotiate lease terms.
Rental Rates for Office Space
Due to the move of major companies and commercial banks, and decreased occupancy levels for commercial buildings in the CBD, office rents now range from ZMW70 to ZMW120 (USD3.88-USD6.77) per square metre for high rise buildings such as Nkwazi House, Electra House, Luangwa House and Godfrey Chitalu House.
Grade A and B office buildings in mixed use ranges between USD15-USD19 per square metre and USD10 – USD14 per square metre respectively. Prime office average occupancy is around 65%, suggesting any meaningful return on rental growth in the short term is unlikely. SMEs prefer residential houses as offices, thus contributing to low occupancy rates for office buildings.
The average yield for prime office space in Lusaka is around 10%. Office rentals are expected to continue adjusting downwards due to the depreciation of the Zambian Kwacha against the US Dollar and the increasing oversupply of office space.
Outlook for the office space market
The average occupancy levels for prime offices in the CBD is around 65%, but this is expected to deteriorate as more office space comes on the property market due to firms continuing to shift to self-built offices and/or use of residential houses.
The transition to mixed use areas is expected to have a positive effect on the occupancy rate for office buildings in these areas. Rental growth is, however, unlikely to be achieved due to oversupply of office space on the property market, depreciation of Zambian Kwacha, high inflation rate and increased cost of borrowing. Landlords will have to continue renegotiating lease terms with tenants in order to maintain occupancy levels for office space.
Presented by Lusungu Kayela, License for Seeff Zambia and Davies Sikanyika, Assistant Manager Valuations & Property Services.
Visit https://www.seeff.co.zm/ for more information and contact details.
Author: Gina Meintjes, 24 February 2023, International