Globally, economic activity is gloomier and more uncertain than anticipated with the weakest growth profile since 2001. This follows the persistent effects of the Covid-19, the Russia-Ukraine war crisis and inflation higher that seen over several decades, according to the IMF World Economic Outlook of July, 2022. It further indicates that global growth is expected to slow from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. Although the Rwandan economy has shown resilience despite the unfavorable global environment, this may not be the case for some of the country’s economic segments, particularly the commercial real estate sector. Records from the National Institute of Statistics of Rwanda show that inflation has skyrocketed to 17.6% as of September, 2022 an increase by 13.8% from September, 2021. But with the lingering after effects of Covid-19, the energy crisis and now the inflation pressures, what is the future of the commercial real estate sector in Rwanda? The recent spike in inflation poses a bigger threat with an already altered course of the commercial real estate industry following the pandemic which left businesses scrambling to remain afloat amid an unforeseen future in a post pandemic world. For instance, the trends indicate less demand and yet an oversupply of office space. This is majorly due to the working from home shift still having an effect while some organizations have resorted to hybrid models with staff working remotely for at least part of their week. As companies are still deciding on their longer term strategies, most of them are in the meantime making savings on the space they require leaving the future demand of office space questionable. Notably, the retail sector has been through a very challenging period since the onset of Covid-19. The rise in inflation from rising food and energy prices has put more pressure on house hold income affecting the consumer’s spending power. On the other hand, rental fees have increased for some retail spaces and remained unaltered for others. This has in turn effected some retail businesses forcing small retailers and startups to close shop while others have resorted to e-commerce only causing a slump in the occupancy levels in most retail buildings. The retail industry however might be on a path to partial resurgence following the current recovery trend in some of the country’s domestic economy activities. The industrial sector has not been an exception, the hardships in the global supply chain and increased commodity and fuel prices have affected the production rates. Likewise, the high international commodity prices have had an effect on the volume of imported goods and raw materials. With low production rates and reduced imports, the vacancy rates for warehouses and industrial buildings are likely to remain on the rise until the global economy stabilizes. On the financial side, the Central Bank Rate was in November increased to 6.5% by the National Bank of Rwanda. This was aimed at reducing inflationary pressures and maintain the consumers’ purchasing power. The changes in the CBR could mean the credit conditions are set to tighten. This will make debt costlier and borrowing harder meaning more investors and developers could turn away from the commercial real estate sector. The current dynamics in the sector have left property owners wondering, is the commercial real estate sector in recession? While the future of the sector remains uncertain, it is important for property owners and managers to always act swiftly to find ways of providing amenities and space that are both desirable and accommodating but can at the same time remain resilient and profitable while also adapting to changing times. The writer is an expert in the real estate sector.
