SUBDUED

Pandemic dampens prime office rents in Nairobi – survey

This is as a result of working from home and oversupply of commercial space.

In Summary

•The challenges brought about by Covid have given occupiers the upper hand in lease term negotiations and forced landlords and developers to be more flexible.

•As the global vaccination rate increases and some lockdown measures improving,  market activity is expected to increase hence higher rates.

Dunhill towers and Goodman building along waiyaki way in westlands Nairobi on March 13,2018./EZEKIEL AMINGÁ
Dunhill towers and Goodman building along waiyaki way in westlands Nairobi on March 13,2018./EZEKIEL AMINGÁ

Monthly prime office rents in Nairobi remained subdued in the first quarter of this year placing it among the cheapest in Africa,  a market survey indicates,

According to Knight Frank’s 28-city composite index, which tracks office rental performance in some of Africa’s key cities, occupier activity has been characterised by consolidations by both domestic and international businesses.

Most businesses were capitalising on weaker rents by upgrading their offices, mirroring the flight to the quality trend being observed across the world.

Monthly prime office rents in Nairobi remained subdued at $12 (Sh1,293 )per square metre with a prime gross yield (profit before taxes and expenses) of eight per cent, lower than Kampala and Dar es Salaam which recorded rates of $15.25 (Sh1,643) and $13.45 (Sh1,449), respectively, with yields of nine per cent.

The average rents in Nairobi are almost five times lower than those of Lagos (Nigeria) which is the most expensive among the surveyed cities.

It had an average asking price of $62.50 (Sh 6,734 ) per square metre, though gross yield matches that of Nairobi, at eight per cent.

Angola’s capital of Luanda had the second-highest rents at $55 (5,926) with a much higher yield of 10 per cent, followed by DR Congo’s Kinshasa which recorded an average rate of $35 (Sh3,771) per square metre.

Other key cities are Cairo (Egypt) which had rates of $33 (Sh3,555) per square metre and Johannesburg $15.15 (Sh1,632).

“Having started positively, the Nairobi office market performance once again has been largely subdued owing to the lockdown restrictions imposed towards the end of Q1 which impacted negatively on market activity," said Anthony Havelock, Head of Agency, Knight Frank Kenya.

According to Havelock, there remains an oversupply of commercial space in most districts across the city, which together with the slow economic recovery and working from home dynamic, gave occupiers the upper hand in lease term negotiations and forced landlords and developers to be more flexible.

"Positively as the global vaccination rate has increased and with some lockdown measures improving, we are seeing multinational occupiers looking to re-occupy their spaces and relook at their strategies which in turn is leading to increased market activity,” he said.

Overall occupancy levels were unchanged at 70 per cent in Q1 2021 same as Q4 2020 as fundamentals such as working from home, continued oversupply of commercial space and unfavourable economic conditions continued to be witnessed in the pandemic era.

New lockdown restrictions towards the end of Q1 are expected to further dampen demand, with rents coming under renewed downward pressure, the real estate consultancy firm says in its report.

Like most other regions around the world, African cities have seen diminished office demand, which has been exacerbated by the economic fallout as a result of the pandemic among other aspects.

Each market has continued to be impacted by unique factors beyond the pandemic such as currency fluctuations in South Africa, the political climate in Lusaka and a supply glut in Johannesburg and Cape Town," said Tilda Mwai, Knight Frank Researcher for Africa.

Locations such as Kampala are however expected to record a rise in occupier activity due to the recent signing of the East African crude oil pipeline project, expected to drive up demand from the oil and gas sector in particular.

Financial services and the technology sector have been the most notable sectors driving occupier demand mirroring trends in the global market, according to Knight Frank.

Looking ahead, Knight Frank anticipates that the prime office market across the continent will remain tenant favourable throughout 2021.

Trends on consolidation of space and flight to quality are likely to continue as occupiers seek to leverage on the weaker market conditions to upgrade the space occupied, Knight Frank says.