ZAMBIAN REAL ESTATE MARKET GROWING OUTSIDE OF LUSAKA

Zambia 2017 | REAL ESTATE & CONSTRUCTION | VIP INTERVIEW

TBY talks to Sydney Popota, CEO of Real Estate Investments Zambia (REIZ), on Lusaka's tenant mix, the company's performance, and plans to construct industrial and commercial properties.

What have been your key areas of priority since taking over as CEO in 2015?

Since 2015, there have been several developments at REIZ but I had three main priorities. Firstly, I placed emphasis on efficiency, right down to the service we offer our tenants. Prior to 2015, we outsourced the function of property management from another company. Now, we do this in-house, meaning we can swiftly deal with issues affecting our tenants and our properties generally. This also tied in with our second focus: costs. With partner property managers, we paid a fee for rental collection, property letting commission, and markup for payments on labor whenever they completed repairs to our properties. By doing this in-house, we were able to reduce our outgoing costs by almost 33%. Finally, I sought to develop our property portfolio again. Since listing on the Lusaka Securities Exchange (“LuSE”) in 1996, REIZ had consistently been adding new properties to its range; however, since 2012 we have not added any new property to our portfolio, which means our market share has been shrinking in view of recent properties that have been released on the market. In order to reclaim this share, we will implement a five-year strategic plan for 2017-2021 which outlines our proposal to grow from 43,000sqm currently to 100,000sqm. While many developers develop properties hoping tenants will occupy on completion, we differ from others in that we will not break ground without having 60% tenant occupancy signed up from drawings.

How has the company performed over the past few years?

Since 2015, REIZ has seen great success: high turnaround on profits, making dividends to shareholders, and a static share price—except from a small slump at the end of 2015 from ZMK3.98 to around ZMK3.40. The share price has rallied in 2016 to close the year at ZMK5.50 per share with further increase recorded in 2017 to the current price of K6.00 per share. On the property management portfolio, it is still the same as it was in 2014 not having added any more properties. Our team has worked hard to reduce vacancies. In 2016, for instance, in one of our centers alone the vacancy rate had risen to 20% but was reduced to 6% within a short time. In 2015, we conducted a market survey to investigate two things: the tenant mix and the rental rates in our competitors' malls. We discovered that our Arcades Shopping Center in Zambia has the least number of national offerings and more local tenants. We also discovered that our rentals were below market average. We engaged our tenants and carried out rental uplift effective October 1, 2015. Although we increased rental rates up to 20%, we retained all our tenants, because even after this uplift, our rental rates remain below market average.

How do you evaluate your tenant mix, and how is this tailored to suit the demand of your properties?

In terms of tenant mix, it is crucial to get the right balance. In retail, we want our tenants to fit the center. People do not come to a mall to see what they can find: their visit to a mall is targeted. We only have one shopping mall in our portfolio at the moment, Arcades Shopping Center. In the retail sector in general, while we see more international brands come in as franchises, we also see greater participation by the corporates themselves as franchises are phased out. We are in the process of having direct links with the key decision-makers of the brands arriving in Zambia to see how we can continue to collaborate. Our low rental rates allow us to achieve and maintain a tenant mix that is sustainable. On the commercial side of things, our tenant mix comes in two parts: the big box takers, with larger spaces for a longer period of time and at a lower rate, and the smaller customer. It is ideal to have a balance between blue-chip tenants and small-time retailers. What is more, we have a healthy variety of local homegrown Zambian and international brands.

What specific expansions and development will the five-year plan entail?

Firstly, within Lusaka, we want to expand the Arcades Shopping Mall from 19,000sqm to nearly 30,000sqm, adding 10,000sqm in two phases. Phase I, a total of 4,500sqm, is in the process currently, and a further 5,500sqm will be added two years down the line. Outside of Lusaka, we seek to open in up-and-coming provincial towns, such as Choma in the southern province. Indeed, we will close some opportunities there soon. We also look at border towns as we see great potential there. And finally, Solwezi is the new Copperbelt, so again, we will focus our attention there. However, in this market it is crucial to find gaps. For example, in Solwezi we will avoid retail as the mall market there is already saturated. Instead, we plan to build offices, and residential and industrial properties. In Lusaka, there are a number of warehousing facilities; however, most of these are not up to international standards. Many foreign brands are reluctant to invest for that reason. REIZ wants to pioneer high-quality commercial facilities in many regions of the country. We are pleased with government's drive to improve the road network, which will open much of the country to new development.