Botswana's Real Estate: Retail, Industrial Sectors Catch Investors’ Eyes

Pic by: Frans Farmer Architects

Top-Performing Sectors by Returns:

• Retail: 8-9.5% yields

• Industrial: 7.5-8.5% yields (highest in Sub-Saharan Africa)

• Office: 8% average returns

• Residential: 4-5% yields

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 Key Market Considerations:

• Industrial: Investors are considering smaller, light industrial developments due to easier market entry

• Retail: Investors look for opportunities in emerging markets with supermarket anchors

• Office: Investors focus on flexible, modern spaces in premium locations

• Residential: Investors target low end of the market.

  
  

An analysis of available reports by Letlole La Rona, Knight Frank and Far Property suggests that Botswana's industrial and retail property sectors offer the most attractive investment opportunities in Botswana's current market. 

Based on the market data through early 2024, residential investments require careful consideration due to lower yields and recent market softening, with the market seeing demand in the lower market.  On the office front, businesses require investors to offer workspaces that accommodate diverse work styles.

Source of information: Letlole La Rona, Knight Frank

Industrial Property Market: Growth in Logistics and Warehousing

1. Sustained Demand for Industrial Properties

• Industrial properties might remain in high demand, driven by efforts to diversify the economy. 

• The new government’s focus on manufacturing will continue to influence market activity, leading to sustained interest in warehouse spaces.

2. Investment Considerations in Industrial Real Estate

• Industrial yields are reported between 7.5% and 8.5% by Letlole La Rona, positioning this sector among the strongest performers.

  
  

• Smaller, light industrial properties have seen steady demand, according to Letlole. This indicates an area of interest for potential development.

  
  

• Letlole said there are limited long-let, investment-grade industrial properties in Botswana.

  
  

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Retail Property Market:

Stability Amid Changing Consumer Trends

1. Growth in Retail Space and New Developments

• Botswana’s retail sector has remained resilient, with major developments such as Mogolori Mall (28,400 sqm) and The A10 (17,000 sqm) adding to available inventory, according to Letlole La Rona and Knight Frank. 

• Urban centers and towns like Jwaneng, Maun, and Mahalapye are seeing increasing retail activity, reflecting expansion in consumer demand.

• Supermarkets continue to play a key role as anchor tenants in new retail projects.

  
  

2. Retail Yields and Market Adaptation

• Retail yields are reported between 8% and 9.5% by Letlole La Rona, suggesting ongoing investor interest in the sector.

  
  

• While consumer habits are evolving with the rise of e-commerce, Letlole said retail spaces in prime locations continue to attract steady foot traffic.

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Office Property Market:

Demand for Premium Spaces

1. Strong Demand for High-Quality Office Spaces

• The supply of premium office spaces remains limited, particularly in Gaborone, according to Letlole La Rona.

• Knight Frank said occupancy rates have been rising, reaching 95% by the end of 2023, reflecting a trend of businesses seeking top-tier office environments.

• Letlole observed that companies are showing a preference for flexible and collaborative office spaces in response to evolving work models.

  
  

2. Rental Trends and Market Positioning

• Rental rates for prime office spaces have remained stable, reported at US$10-12 per square meter, Knight Frank indicated last year.

  
  

• Returns on premium office spaces have been estimated at around 8%, with continued demand for high-quality facilities.

• Secondary office spaces face challenges in attracting tenants, particularly those lacking modern amenities and parking facilities.

  
  

3. Shifts in Office Locations

• Setlhoa is emerging as a competitive office hub, with the potential to rival areas like the Showgrounds.

• Larger corporate tenants seeking 2,000-4,000 sqm face a shortage of available stock and may need to explore pre-let agreements, Letlole observed.

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Residential Property Market:

Mixed Signals

1. Demand and Supply Dynamics

• Knight Frank said high-end residential properties have seen increased demand, partly driven by changes to the Transfer Duty Act making purchases more attractive for international buyers.

• The low-to-middle-income housing market faces supply challenges, with demand outpacing available units in Gaborone.

• Conversely, the upper-end residential market appears oversupplied, raising questions about future rental price movements.

  
  

2. Rental Market Trends and Returns

• The residential rental market showed signs of weakening in early 2024 according to Ribbery Report, with rising vacancy rates and declining rental prices.

• Average house prices fell by 4% in Q1 2024, potentially influencing investment decisions in this segment.

• Knight Frank reported that residential yields range from 4-5%, which remain lower compared to commercial and industrial sectors.

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Takeaways

• Demand for premium office spaces remains strong, with stable rental rates. Investors seek potential in smaller, high-quality office spaces catering to evolving work models.

• With high demand and reported yields of 7.5-8.5%, industrial real estate continues to attract interest, particularly in warehousing and logistics as diversification efforts continue.

• Retail sector has shown resilience, with 8-9.5% yields in prime locations. The continued expansion of retail space in growing urban areas could indicate further opportunities.

• The low-to-middle-income housing market faces shortages opening up opportunities for development, while the high-end segment appears oversupplied.

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Also read:

Reports Indicate That Low-Income Housing Shows Promise for Investors: The low-income segment has strong demand with rising rental prices, while the middle-income segment faces weaker demand and supply challenges. The luxury market, boosted by transfer duty reductions, is now oversupplied, which may push rental prices down.

To Be a Billionaire Takes 60 Years’ - Apex Founder on Real Estate Investing: Learn how Umesh Loona saw urban migration as a golden opportunity when he dove into real estate. He advised newcomers to the game to seek out unstructured markets—like Gaborone North—rather than well-trodden areas like Phakalane, where land ownership is clearer. 

Real Estate: Residential Property Flexes Its Mettle: Gaborone stands out with a significant surge in rental rates, particularly in the 3 and 4-bedroom segments. The segments witnessed heightened demand, which FNB Botswana says is possibly driven by families seeking spacious and accommodating living arrangements during times of transition.