2012 gaborone office market - knight frank · 2014-04-02 · 2012 gaborone office market 5...
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HIGHLIGHTS• Strongerthananticipatedtake-upintheCBDhasalleviatedfearsGaborone
wouldbesaturatedbythedeliveryofnewofficesin2012.Concernhasnowshiftedtoageingstockinsecondarylocationswhichhavealreadyseensubstantialrentalfallsandwillcontinuetostruggletoattracttenants
• Thebalanceofnegotiatingpowerisnowmoreevenbetweenlandlordsandtenants.PrimerentssettledatP110persqmpermonththoughleasetermshavebecomemorefavourabletooccupiers.Demandlevelsremainstrong,thoughrentalgrowthislikelytobecurtailedbyfurthernewsupplyduetocometothemarketinthenexttwoyears
• Owner-occupierappetitehasbeenresilient,especiallyfromsmallandmediumsizedbusinesses,withsectionaltitleunitssellingwellinallthemajorofficelocationsdespiterisingbuildcosts
• Strongcompetitionforinvestmentgradeopportunitieshasseenfurtherdownwardpressureonprimeyields
RESEARCH
2012
GABORONE OFFICE MARKETKnight Frank
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Economic summaryBotswana’sgrossdomesticproductisforecasttohaverecordedgrowthofaround3.8%in2012.Thisrepresentsafairlysolidperformancegiventheglobaleconomicpicture,withtheEuroZonelikelytocontractandtheUSandUKprobablyseeingonlymarginalgrowth.GrowthratesinAsiaarestillimpressiveatananticipated7.3%.ArobustperformanceinAsiameansstrongdemandforAfrica’sminingproducewhichBotswanashouldbeabletocapitaliseon.However,Botswana’simmediateneighbourSouthAfricaisonlyexpectedtoshowgrowthof2.6%andthatfiguremaywellbereviseddownwardsinlightoftheturmoilseenacrosstheborderduringthesecondhalfoftheyear.
ForecastdataforBotswanathroughto2017ispositive.AnnualGDPgrowthinexcessof4%isestimated,whichalthoughwellbelowthelong-termaveragewouldnevertheless
2012GABORONE OFFICE MARKET
representareasonablepaceofexpansion.Theeconomywillremainsusceptibletoglobalshocksgiventherelianceonthediamondindustryanddiversificationremainsapriorityforthegovernment.
GivenBotswana’spositionofrelativewealthinAfricaandthemoreaustereenvironmentsthathavebecomeprevalentinthemajorityoftheprincipaldonornations,fundinglevelsforanumberofNGOshavecomeunderscrutinyandcutbackshavebeenforced.InternationalbusinessescontinuetobeinterestedinoperatinginBotswana.TherewerenotablenewentrantsfromAsiain2012,especiallyChineseandIndianoperators,asbusinesslinksbetweenthecontinentsgrows.Botswana’sreputationasacountryofpoliticalandeconomicstabilitywhichwelcomesinternationalbusinessandtalentmakesitanattractivemarketinwhichtooperate,somethingthatneedstobeprotectedandpromoted.
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Figure1
Botswana GDP growth*%
Source:IMF/NationalStatisticsOffice*Forecastdataafter2010
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Gaborone office marketFearsofamarketoversupplyhadabatedbytheendof2012.Thebasisofthesefearswasnotpurelymarketdriven.Therehasbeenaggressivespeculativebuildingonthepartofdevelopers,butthesituationwasalsoforcedbytherestrictivecovenantsplacedonownersofCBDplotsthatrequiredevelopmentwithinasettimeframetherebycreatinganartificialsurgeinofficecompletions.
Asnewspacehascompleted,notonlyinthenewCBDbutalsoinFairgroundsandFinancePark,vacancyrateshaveincreased.However,theimpactofthedeliveryofthisnewspaceappearstobemanifestingitselfinsecondarygradestock.Tenantshavetakentheopportunitytomoveandimprovetheirdaytodayworkingenvironment.
Historically,theprimarydriverofdemandintheGaboronemarkethasbeengovernment.However,austeritymeasuresledtotheshelvingofanumberofoffice
requirementsandtransactionalactivitywasseverelycurtailedin2010and2011.Aswellasatighterpublicpurse,acombinationofalackofgoodqualitystockandacautiousapproachfromlargeprivatesectoroccupiersdampenedlettingactivity.
Asnewspacecompletedin2012take-uplevelsbegantopickup.Expansion,consolidation,newentrantstothemarketandsimplytheabilitytobeabletorelocatetomodernofficescapableofsupportingmodernbusinessrequirementsallprovidedthemotivationforofficemoves.Momentumpickedupoverthecourseoftheyearandalthoughmanyoccupiersareyettomovein,take-upofnewofficesintheCBDhasbeenstrongwithanumberofthecompletedschemesnowat/orcloseto100%occupancy.
Itwaslargelythestatebackedoccupiersthatboostedofficetake-upin2012withparastatalsandgovernmentdepartmentsaccountingforCirca65%oftransactionsrecordedoverthecourseoftheyear.
Figure2
Prime Gaborone Office Rents
USD GBP BWPEuro ZAR
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Source:KnightFrank
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Figure3
Take-up by sector - 2012Figure4
Take-up by sub-market
Source:KnightFrankBasedontransactionsrecoredbyKnightFrankover100sqm
Source:KnightFrank
CBDFairgroundsFinanceParkMainMall&GovernmentEnclave
Banking&FinanceProfessionalCorporate/Manufacturing/MiningIT&T/MediaGovernmentParastatalNGOOther
Fairgrounds
Finance Park
Gov’t Enclave / Main Mall
Ext.6
CBD
OldNaledi
G-WestIndustrial
G-WestPhase4
Block9
Block5
Block6 Block3
G-WestPhase1
G-WestPhase2
Ext.11
Ext.9
Ext.10
Ext.7
Ext.6
Ext.14
Village
Ext.12
KgaleView
Game City / Kgale View
Commerce Park
Partial Maruapula
Broadhurst
Riverwalk
Fair-grounds
Mall
Rail Park Mall
Molapo Crossing
Westgate Mall
Grand Palm
Metcourt Inn
Golf Course
Unviersity of Botswana
National Stadium
UB Stadium
Gaborone Sun
Village Centre
Princess Marina
High Court
Bus Rank
African Mall
Station
Tlokweng
Tlokweng
Gabs West Shopping
Centre
Lobatse
Gabane
WES
TERN
BYP
ASS
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OD
ITSH
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E
NYERERE DRIVENo
Mathata
Middlestar
Boipuso HallDitshupo Hall
Showgrounds
Lansmore Hotel
Mondior
Cresta Lodge
Gaborone Game
Reserve
Molepolole
Figure5
Prime and secondary rents
CBD
Fairgrounds
FinancePark
MainMall&Gov’tEnclave
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Source:KnightFrank
GABORONE OFFICE LOCATIONS
Primary Office LocationsCBD
FairgroundsFinanceParkMainMall&GovernmentEnclave
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KnightFrankexpectasimilarpatternin2013,withseveralmajorgovernmentdepartmentsfinalisingmoveswhileouractiverequirementsschedulealsoincludesfurtherdemandfromparastatalsandsomemajorprivatesectoroccupiers.Thescaleofsomeoftherequirementswillinstigatefurtherdevelopmentasexistingbuildingswilleitherbeofinsufficientsizeorwillfailtomeetthespecificationsoftheenduser.
WhileanumberofmarketcommentatorshavesuggestedthatdemandfromthediamondindustrywouldprovideamajorboosttotheCBDofficemarketinparticular,wehaveyettoseethismaterialise.Therehasbeentake-upofofficesfromothersectorsoftheminingindustry,butthediamondtradersandtheassociatedelementsoftheindustryhaveshownapreferencetolocateattheDiamondHub.
SubmarketsMain Mall & Government EnclaveWhatisessentiallynowGaborone’s‘OldCBD’hassufferedinrecentyearsasalackofsufficientparkingprovision,ageingstockandincreasedcompetitionfromotherofficelocationsaroundthecapitalhaspulledtenantsaway.Secondarygradestockintheareahastakenasizeablehit,withrentsinsomehighprofilebutageingbuildingsfallingbyasmuchas50%innominaltermsfromamarketpeakin2010.
Whilethereislittlenewstocktocometothemarket,BotswanaPost’sPosoHouserefurbishmentbeinganexception,vacancyratesleaptin2012andarelikelytorisehigherstillin2013.Therearelargetranchesofspacealreadyavailableinsingleunitsasmajoroccupiershavemovedoutofthearea.Thiswillbeexacerbatedinthefirsthalfof2013withamongstothersFNBrelocatingtotheirnewpurposebuiltfacilityintheNewCBDandotherssettofollow.
Thereisdemandforofficeaccommodationinthearea,butlandlordsofsecondarybuildingswillhavetoconsidertheirlong-termstrategiesandworkouttheirtargetmarket.
New CBDHalfofallofficetake-uprecordedacrossGaboronein2012tookplaceintheNewCBDandoverthecourseof2013weshouldstarttoseetheareareallycometolife.Manyofthesupportingfacilitiesarenowoperational,withthefoodandbeverage
outletsinthepiazzaoftheMasaCentrealreadyprovingadrawforthelunchtimebusinessandsocialclientele.
Lettingactivityin2012absorbedasubstantialportionofthenewspacethatwasdeliveredtothemarket.Parastatalsledtheway,withCEDArelocatingfromtheMainMalltoPrimePlaza(oneofthefirstnewdevelopmentstoachieve100%occupancy)andBITCandNBFIRAtakingthelion’sshareofthelandmarkExponentialbuildingwhichisalsovergingonfulloccupancy.
AverageGradeArentsachievedinGaboronewereP92persqm.WhilerentsintheCBDandFairgroundshavefaredrelativelywellandgenerallyachievedwellabovethisfigure,FinanceParkhaspulledtheoverallfiguredownwithnewofficestradingsignificantlybelowthislevel.
Despiteoftenexpressingapreferencetoowntheirownproperty,mostmajoroccupiershavefollowedtheleasingroutein2012.Asthemarketisprogressingthroughaperiodofmajorchange,a‘waitandsee’sentimenthasbeenprevalent.Decisionmakersarewantingtowaituntilthedusthassettledonthecurrentspateofdevelopmentsbeforemakinglong-termcommitments.
InvestmentDemandforinstitutionalgradeinvestmentproductintensifiedfurtherin2012withlargeallocationstopropertychasinga
Plot28,Matsitama,BEDIA’sformerHQwillcometothemarketinearly2013
verylimitedrangeofstock.Competitionhasdrivenyieldsdownforqualityofficesandweexpectthistoremainthecasein2013.AlthoughofficesactuallyrecordedtheweakestreturnoutofallthemajorpropertysectorsaccordingtoIPD’s2011figures–officesrecordedatotalreturnof18.2%-itstillshowedaphenomenalreturnoninvestmentcomparedwithothernonpropertyassetclasses.
Reflectingconditionsintheleasingmarket,wewouldexpecttoseetougherconditionsforsecondarygradestockasattractinggoodcovenanttenantstolong-termleaseswillbecomeincreasinglydifficultinolderbuildings.Onwellletinstitutionalgradeoffices,KnightFrankanticipateprimeyieldstosettleataround8%,buttransactionalactivitytobelimitedbyacontinuedlackofsuitablelong-termprimeinvestmentopportunities.Itwillthereforebedifficultforsomeofthemajorplayerstoutilisetheirallocationstoproperty.
NewFNBHQ,NewCBD
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2012GABORONE OFFICE MARKET
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TechnicallyanumberofthelargerbuildingsontheeasternedgeoftheCBDarestillavailable.Howeveritisunderstoodthatgovernmentdepartmentshaveallbutfinalisedtheacquisitionofthisspace.ConsequentlytheCBDwillprobablyhavethelowestvacancyrateofallGaborone’ssub-marketscomemid-2013.
BDC’sFairscapePrecinct,Fairgrounds
KnightFrankexpectstheNewCBDtoaccountforanevengreaterportionoftake-upin2013.Althoughnewcompletionswilladdsignificantlytostock,asubstantialportionofitisonanowneroccupierbasiswhichwillhelpmitigateagainstsaturation.Thefearsofanoversupplyofofficeshavealsoseenashifttomoremixeduseschemesfromdevelopers,themostnotableofwhichbeingthedecisiontodevelopthewholeofthesecondphaseoftheiTowersasresidentialandretail.
FairgroundsAlthoughtherehasbeensomemovementawayfromtheFairgrounds,principallyduetoexpansionbyoccupiers,occupancyrateshavebeenresilientandnewdevelopmentsinthemarkethaveletwell.Time’sGabzFMdevelopmentwasclosetofulloccupancyattheendof2012andsalesoftheirsmall
Figure6
Projected CBD office stock000sqm
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sectionaltitleofficescheme–TheOffice–werereportedtobebrisk.Therearefurtherdevelopmentstobedeliveredtothemarketinthecomingyear.ThemostprominentschemebeingBDC’sstunninglookingFairscapePrecinctdevelopmentwhichisalreadybecomingavisiblelandmarkasitemergesabovethegenerallylowriseskyline.
FairgroundshasestablisheditsselfasGaborone’spremierofficeparkandwhilewedonotexpectanymajorincreasesinrentalsinthenextcoupleofyears,thequalityoftenantswillensurestability.
Finance ParkRentsinFinanceParkfellsignificantlyoverthecourseof2011.In2012anumberoflandlordsrevisedtheirapproach,cuttingaskingrentsinordertosecuretenantsandofferingflexibleleasetermsratherthanseetheirpropertiessitempty,asthemarketappeareddelugedbynewsupply.ThisapproachhaspaiddividendswithaflurryoflettingstoSMEsandafewlargetransactionsabsorbingasubstantialportionofFinancePark’savailableoffices.NotablythelettingofthemajorityofPortion132totwogovernmentoccupiersremovedaconsiderableamountofspacefromthemarket.
KnightFrankbelievesrentshavenowbottomedoutinFinancePark.Whilerentalgrowthisunlikelyin2013,thepriceshiftwehavealreadyseenshouldcontinuetoseeabsorptionofexcesssupplywithrentsstartingtoriseagainin2014.
Portion132,FinancePark
PrimePlaza,Phase1,NewCBD,FullyoccupiedwithtenantsincludingCEDAandKenyanAirlines
Source:KnightFrank
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