SUBDUED

Real estate sector depressed amid COVID-19 crisis - Knight Frank

The sector witnessed a 68 per cent decline in office space absorption in the 1st quarter of 2020, compared to the 4th Quarter of 2019

In Summary

•The decline in absorption from the previous quarter is primarily because businesses had finalised on their activities before the close of the year and Q1 historically is a slow quarter for office take-up

•There has also been an increasing trend of landlords and tenants negotiating flexible payment plans where possible, as cash flow is currently greatly affected

Construction workers in housing units by NHC in Langata yest. Jack Owuor
Construction workers in housing units by NHC in Langata yest. Jack Owuor

The Coronavirus pandemic has accelerated the challenges that were already being faced by the real estate sector, according to  property consultancy and management firm Knight Fran

According to its 2010 property market outlook,  COVID 19 has accelerated short-term and longer-term implications on various property sectors including office, retail, hospitality, residential and construction space

“We have been monitoring the market closely and our agents and occupier services teams are working hard to ensure we provide the necessary assistance to all our clients as we are in a rapidly evolving situation, " said Knight Frank Kenya MD Ben Woodhams.

According to the report, commercial leasing witnessed a 68 per cent decline in office space absorption in the 1st quarter of 2020, compared to the last quarter of 2019, but a 60 per cent increase compared to the 1st quarter of 2019.

 
 

It explains that the decline in absorption from the previous quarter is primarily because businesses had finalised on their activities before the close of the year and Q1 historically is a slow quarter for office take-up.

“Prime rents remain unchanged at Sh130 per sq. ft/month and the stagnation of prime rents over the period was mainly attributed to the oversupply of commercial space in some locations and an unfavourable economic climate.” the report states.

There has also been an increasing trend of landlords and tenants negotiating flexible payment plans where possible, as cash flow is currently greatly affected.

In the retail sector, online shopping and deliveries have increased as stores collaborate with delivery partners to offer customers convenience to ensure trading continuity, a trend that has seen retailers fast-tracking their online presence..

“In the short term, some landlords have been considering rental concessions on a case by case basis as they understand the difficult situation, and are exploring ways of preserving their cashflows through service charge management and considering turnover based rentals,” the report indicates.

The hospitality sector faces considerable challenges due to tightened travel restrictions, hotel occupancies have plummeted forcing some hotels to close temporarily.

The ban on all international flights, with the exception of cargo flights, as a strategy to contain the spread of COVID-19 in Kenya, hit the hospitality sector the hardest, owing to its heavy reliance on tourism and the MICE (Meetings, Incentives, Exhibitions, and Conferencing) sectors.

As occupancies declined to about 20 per cent at the beginning of April 2020, several adjustments were made by key players in the hospitality sector.

 
 

There has been a drop in house sales and rental prices in Nairobi in the first quarter of 2020 according to the report. This was mainly attributed to the preexisting market conditions rather than the COVID-19 pandemic.

Knight Frank has noted a decline in international rental inquiries and by extension the expatriate market as some international prospective tenants have stopped their search and gone back to their home countries for the time being.

“Positively our agents are still receiving requests from interested parties who are looking to buy and sell, so there is market activity. In order to ensure business continuity we are incorporating technology such as virtual viewings to facilitate this where possible,” said Head of Agency at Knight Frank Kenya, Anthony Havelock.

According to the report, the completion of projects in the construction sector has been and continues to be affected by delays in the global supply chain which has led to a delay in materials and labor shortages due to health and safety concerns and travel restrictions. 

Delays in receipt of funds may also stall projects, in the short term.

To address the Covid-19 effects on the performance of the construction industry, a multi-agency team composed of public and private institutions or organisations have developed health and safety guidelines to be used on construction sites to prevent transmission of the coronavirus.