Poor service delivery from local authorities and the harsh the economic environment in the country is causing a spike in Zimre Property Investments Limited (ZPI) rental defaults and vacant space, a company official said.
ZPI managing director Edson Muvingi told the company’s annual general meeting on Tuesday in the capital poor service delivery around the company’s Fidelity Life towers, situated in Harare’s kopje area, saw tenants vacating the building.
“When I left Fidelity Life Towers, there were pools of water in the reception area because we were pumping water to our basement tanks to fill our upward tanks because there is no water. Imagine for two weeks there is no water, you ask them (Harare City Council) and no one will tell you when water will be restored. As soon as you get out, you are also walking through street service stations in terms of motor repairs and services that are going on and before you know it there are trucks and buses from driving schools that are operating within the same street and that’s an operating environment that we are dealing with,” Muvingi said.
“It’s amazing how some of the things that don’t cost money are being allowed to prevail just like that. If you remember, that area was revived through a local plan, a statutory intervention where those buildings were encouraged to be built in that area as a rejuvenation programme, but it has been completely ignored, that’s the city that we are dealing with. It’s one of the best buildings if you are looking at it but tenants are moving out of this building because the local operating environment in terms of the upkeep in the area has become difficult,” added Muvingi.
“We have written to council so that we can partner them including patching potholes so that we can manage that area including the (Infrastructural Development Bank of Zimbabwe) IDBZ, but there has been no response so there is nothing going on,” Muvingi said.
High rentals in and around Harare’s central business district, coupled with service complications such as congested roads and noise pollution has seen corporates preferring office parks that are more spacious and often cheaper.
The property vacations at Fidelity have seen voids growing to 26% in the current year.
The voids, coupled with reduced rentals due to negotiations, have also pushed down margins and affected operating profit for ZPI. Operating profit slid 43% due to the rental reductions, project sales decline that has also come through and growing operating costs due to vacated space.
Muvingi said rentals went down by 15% in the first five months of 2017 compared to the same period in 2016 due to a combination of the renegotiated rentals and vacations by tenants either voluntarily or trough evictions.
Operating costs went up after building and projects costs went up 14%.
“There are two things, there is building operating costs because as soon as tenants vacate, the costs that would have ordinarily been paid by the tenants become our costs and as more tenants vacate and more space becomes vacant the more costs we pick up which is why we have emphasised the reduction of rentals in order to avoid the double tragedy of losing rent and picking up operating costs coming from that area. The 14% increase relates largely to the vacation because in terms of projects we recover costs related to projects as and when we sell,” said Muvingi.
Stand sales for the company went down by 10%.
Apart from the vacations and rising costs, the company is also witnessing a cash flow challenge as tenants are struggling to pay rentals.
As a result of the biting liquidity crunch that has seen corporates crumble and thousands lose jobs, rentals have been pushed downwards with tenants at times voluntarily vacating space.
Muvingi said tenants’ capacity to pay forcing ZPI to take swaps.
“I will give you an example, we had a tenant who owed us almost US$500 000 and the tenant is owed US$600 000 by the local authority and we said can we recover from who owes you. As a result we have said we have buildings that we are paying rates for and you are owed by council so we can have our buildings credited with whatever is outstanding at the moment as part of recovery of rentals but cash flow suffers,” Muvingi said.
“Whatever the swaps we are doing affect our cash flows and flexibility to acquire other assets to increase our other income. For now that’s the best we can do …for others you find they are trading motor vehicles and they want to bring the motor vehicles as part of the payment so we take the motor vehicle then the cash flow suffers.”
This, Muvingi said, reflects the progressive deterioration of the economy.