Security measures likely to raise city office, retail rents

A security officer helps evacuate survivors from Dusit Hotel after a terrorist bomb attack on January 15, 2019. Photo/Monicah Mwangi
A security officer helps evacuate survivors from Dusit Hotel after a terrorist bomb attack on January 15, 2019. Photo/Monicah Mwangi

Rental costs for office and retail spaces could go up by an estimated 10 to 25 per cent, as landlords install security measures for their properties, industry experts have said.

Currently, the average cost for space per square foot is Sh102,driven by oversupply in commercial office space. Cytonn Investment senior manager for regional markets Johnson Denge said the increase is attributable to the higher service charge on security to protect tenants from threats such as terror attacks.

“With increased attacks, developers are likely to put in more security surveillance measures in the buildings, and re-think risk management as they invest more in disaster control,” Denge said.

However, Hass Consult head of research and consultancy Sakina Hassanali said most landlords are likely to absorb the increased costs if any. This, even as she projects little or no effect on property prices within Nairobi. “I think landlords will absorb this cost as commercial and retail letting is slow, and so they probably do not want to lose tenants in extra service charges,” she said. In the retail market, the experts believe the attacks will restrict movement into malls and mixed-use developments hence affecting their footfall.

Currently, 30 to 35 per cent of the retail sector in the country is formal while the rest is informal. In the recent terrorist attack at 14 Riverside offices, at least 40 companies were caught up in the attack, losing scores of staff to the gunmen’s bullets.

The attack was a blow to Kenya’s efforts in improving its ranking on the global terrorism index, a key factor looked at by investors when putting up new investments. According to 2018 Global Terrorism Index by Australian-based Institute for Economics and Peace released last month, Kenya recorded a drop from the 22nd most exposed country in 2017 to the 19th most exposed in 2018.

The report measures the impact of terrorism in the country. Hassanali said large scale attacks, as measured by the index, always create a short-term hitch in foreign direct investment, which often does not last very long.

In addition, Knight Frank Kenya managing director Ben Woodham said the attacks will have a negative Rescue efforts at Dusit D2 last week in the wake of a terror attack impact on office and retail space in the short term.

He, however, noted that if terrorism is mitigated jointly, investor confidence will be restored and Nairobi will recover quickly to remain a key regional hub in Eastern Africa.

Other effects of the terror attacks according to the experts include, higher cost of insurance premiums due to increased risks, reduced business tourism, and reduced investor confidence.