New African Properties (NAP) foresees continued financial headwinds as high inflation causes high expenses and low rental growth. NAP Managing Director, Tobias Mynhardt stated that property costs have increased across the board with utilities and other services with high labour components, such as security and refuse increased by an average of 10 percent on the standing portfolio as a result of the current inflationary environment.
“The current economic environment is challenging and the high inflationary environment is resulting in expense growth exceeding embedded rental escalations and rental growth on new leases.” In the Company’s 2022 annual Report, Mynhardt said the expenses of a more variable nature such as repairs and maintenance, letting commissions and tenant installations have all increased significantly in the current year.
Mynhardt highlighted that the vacancies have increased from five percent at the start of the year to six percent at year end. “Namibian and Selebi Phikwe vacancies comprise 25 percent and 21 percent of the year end vacancies respectively. Both of these nodes are likely to be problematic.
Kasane comprised a further 16 percent of vacancies, however letting activity in this area is showing improvement and a tenant installation is currently underway for a multinational retailer for 29 percent of this vacancy." The company has experienced reduction of new leases in recent years with most tenants preferring shorter leases, particularly on renewals.
However, the company has experienced improvements as the challenges brought by lockdowns in the past two years has improved in recent months, resulting in a reduction of monthly tenancies from 11 percent of Gross leasable area (GLA) at the start of the financial year to seven percent at year end.
“At least 75 percent of these are purely timing and will be closed in the short term, there is however some smaller tenants who are unlikely to renew.” During 2022, the carrying value of NAP investment property increased by P80 million to P1, 5 billion while in 2021 it reflected a P19 million decrease to P1 4 billion.