Home » Industry » Pearl to Turn CBD Offices Into Apartments

PEARL Properties Limited has moved to tackle an erosion of shareholder value sparked by the collapse of companies and movement of performing firms out of the Central Business Districts (CBDs), a situation that has affected rental income.

The firm said it would transform offices in its CBD properties, which fail to find corporate tenants, into residential apartments.

The Zimbabwe Stock Exchange-listed property enterprise had 57 properties under its portfolio during the year ended December 31, 2014, but says only 43 of these were generating income during the review period.

Managing director, Francis Nyambiri, said last week that in addition to massive defaults, with debtors climbing to US$2,4 million during the year under review, from US$1,7 million in 2013, voluntary office rental space surrenders had swelled.

Struggling firms, including banks, found the going tough in Zimbabwe’s liquidity starved market, forcing a number of them to stop operating.

Pearl said it had refocused an industrial property into retail rental space due to closure of manufacturing firms that left industrial estates empty.

The property market crisis mirrors the rapid deterioration of Zimbabwe’s economy, which has entered its fourth straight year of recession since 2011.

Nyambiri said they were looking at several possibilities of preserving value, including the shift towards CBD residential apartments.

“There is no life in the city at night. Once people go home after work, it is quiet,” said Nyambiri.

“Some of the things we are looking at include turning the offices into residences,” he said, noting that the plan was still at its infancy.

“Occupancies have been stagnating or declining across all sectors. The worst affected has been the CBD sector. There has been a decline in rental rates mainly to do with failure by tenants to pay their rentals,” the Pearl MD said.

He said rentals per square metre declined to US$7,57 during the review period, from US$8,28 per square metre during the prior comparative period in 2013.

Property market analysts said prices would this year continue on the downward trend, while rentals for office space in the country’s CBDs would be hammered by an exodus of formal businesses relocating to outlying areas.

Takunda Mugaga, head of research at aisory firm, Econometer Global Capital, warned of the dire effects of leaving informal traders to operate on pavements, taking away customers from formal shops. This will lead to the closure of many shops in the CBDs, he said, as investors flee to areas where competition with informal traders is low.

But this would have far reaching implications on the earnings and profits of most listed property firms, which control vast swathes of rental space in CBDs.

In a recent interview with the Financial Gazette’s Companies amp Markets, Mugaga called these informal traders the “nocturnal economy”.

On face value, informal vendors have no bearing on the operations of the big property counters.

Yet on close analysis, one sees the dire effects of their aggression.

But in a country where 55 000 people have lost jobs and 5 600 firm closed between 2011 and 2013, government finds itself placed between a rock and a hard place.

Authorities have to find jobs, or create viable opportunities for thousands of these informal traders before asking them to leave.

“Property prices are going to perform below average,” Mugaga said.

“This will have a dent on listed property firms. Demand for office space in CBDs is going to decline sharply because the nocturnal economy is taking over. In fact we have two economies at play, the formal economy and the nocturnal economy. You open a clothing shop in the CBD, and vendors come and camp on your doors, if you open a supermarket, it is the same.”

“These people do not pay rentals and their prices are cheap. This will continue to push formal businesses from CBDs and affect rental prices and trends on property counters.”

Reflecting on the subdued business, revenues for Pearl Properties declined by 2,71 percent to US$8,778 million during the review period, from US$9 million during the same period in 2013.

Operating profit before tax and fair value adjustment declined by 23,6 percent to US$3,6 million, from US$4,7 million during the prior comparative period in 2013.

Source : Financial Gazette