Seeff comments on the state of the commercial property market in Zambia
Commercial property in Zambia, specifically Lusaka, is not immune to the economic tides of change sweeping the country. Seeff Properties has seen an increase in office space supply, people choosing to relocate offices, reduced rent for office spaces, high cost of borrowing, and perhaps most notably, the depreciation of the Zambian Kwacha against the US Dollar.
For landlords in Zambia, these trends are concerning. Seeff breaks it down:
Macro-economic factors impacting commercial property in Zambia
The economic climate in Zambia is cause for concern. Inflation hovers around 9.9%, while the Kwacha depreciates against the US Dollar and currently stands at ZMW 18.36 to USD1. The cost of living is also rising, and to worsen the situation, commercial bank lending rates are at 25.2%, making it increasingly difficult for businesses to access capital.
Seeff has also noted the oversupply of office space, leading to office rental costs adjusting downwards for commercial property in Zambia. The only glimmer of hope is that debt restructuring is progressing and expected to positively impact the budget and market sentiments, providing some relief from the increasing inflation outlook.
Commercial office space supply in the city of Lusaka
The bustling city of Lusaka is the capital of Zambia and boasts a commercial centre at its heart. The city's skyline is dominated by high-rise commercial buildings, which provide retail and office spaces, the most notable being Fideco House, Nkwazi House, Electra House, Indeco House, Luangwa House, and Godfrey Chitalu House.
In recent years, the CBD has been subject to outward expansion, leading to the rezoning of residential areas such as Fairview, Rhodes Park, Longacres, Prospect Hill, Mass Media, Northmead and Kalundu. These areas are now designated mixed residential and commercial zones.
The city centre has limited parking space and a highly congested road network, especially during peak hours. As a result, many private firms and banks - such as First National Bank (FNB), First Capital Bank, and Ecobank - have relocated their offices away from the CBD and to these mixed-use areas.
This relocation has negatively impacted landlords. Many landlords are now forced to renegotiate their lease terms, as they find themselves with vacant commercial buildings in the city centre.
However, the good news is that the demand for residential properties in mixed-use areas is high, with many of these houses either being used as offices or demolished to make way for new office buildings. Seeff recommends that commercial property landlords consider residential property for their next investment, as this might provide a more sustainable source of income.
The cost of commercial property rentals
The depreciation of the Zambian Kwacha against the US Dollar and a growing oversupply of office space threaten to drive rental prices lower for property in Zambia. Unfortunately, the situation is unlikely to improve in the short term, as prime office occupancy hovers around 65%, and small to medium enterprises prefer to repurpose residential houses as home offices. The average yield for prime office space in Lusaka has fallen to a meagre 10%.
- From Nkwazi House to Godfrey Chitalu House, rental costs have plummeted, ranging from ZMW70 to ZMW120 (USD 3.88-USD 6.77) per square metre.
- Grade A and B office buildings in mixed-use settings have experienced similarly dramatic declines, dropping to USD15-USD19 and USD10 – USD14 per square metre, respectively.
What is the future of commercial property in Zambia?
Occupancy rates for offices in the CBD are already precarious, hovering around 65%. This is not good news for commercial property in Zambia. With more office space entering the market as companies choose to build their own offices and invest in residential properties, occupancy levels are likely to dip further.
Although the transition to mixed-use areas may help, rental growth is unlikely due to an oversupply of office space, a depreciation of the Kwacha, a high inflation rate, and increased borrowing costs.
Landlords must renegotiate lease terms with tenants if they wish to maintain occupancy levels.
Are you a landlord facing the challenges described above? Consult one of our Property Practitioners for guidance on the way forward. We will be more than happy to help.
If you are keen to venture into property investment, read our blog on how to make your first commercial or industrial property investment and receive tips and insights that will equip you for this new venture.
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