Kenya's supply of commercial space is currently saturated and no new major office developments are expected to enter the Nairobi market until 2023.
According to Knight Frank's Half Year Market Update, lack of new developments could potentially drive up occupancy rates of the existing ones and rents of prime addresses.
The estate agency, residential and commercial property consultancy firm said this is because most firms have either resumed working from office or have adopted a hybrid version with the ebbing of the pandemic.
Presently, the average monthly prime rent has stabilised at $1.20 (Sh140) per square foot, with many landlords preferring rental payments in dollars, due to the depreciating Kenya shilling.
The shilling continues to shed its value, sinking to its lowest against the US dollar.
Yesterday, it opened trading at 120 units against the greenback, with money market experts projecting it to hit 135-140 by December on strengthening dollar.
Prime residential rents declined by 2.23 per cent during the first half of 2022 compared to 1.58 per cent over the same period in 2021.
This is attributed to the continued oversupply and effects of the rise in cost of living.
"The market remains a tenant’s market, implying that landlords will continue to provide various concessions in an effort to have high occupancies,''Knight Frank report says.
On the sale front, prime residential sale prices improved marginally by 1.2 per cent in the first half of 2022. This is attributable to the post pandemic reopening of the economy.
Though positive, this increase is lower than the 2.4 per cent rise during the first six months, due to the August general elections, causing a cooling of the economy.
On the retail market, supermarket chains remained highly acquisitive as they opened new branches in more convenience led destinations to tap into densely populated areas within certain residential locations.
These include Naivas and Quickmart, with Chandarana following suit, a departure from its favoured mall strategy.
This trend is expected to continue, despite the increasing cost of living.
Mark Dunford, Knight Frank Kenya’s CEO says in overall, the real estate sector, which has been in recovery may now be constrained on the regulatory front, with the reinstatement of building construction levies and Environment Impact Assessment license fees that were scrapped in 2017.
''Additionally, the tripling of capital gains taxes in January 2023 may adversely affect investors during these challenging economic times,'' Dunford said.
He added that the government’s newly introduced Ardhisasa digital title conversion process, designed to ease land transactions and foster transparency, nevertheless has caused some concern as the market is yet to become familiar with it.
Charles Macharia, senior Research Analyst, Knight Frank Kenya the firm continues to see investors in real estate diversifying into less traditional asset classes, away from those that are currently oversupplied to those that are more resilient.
''This has seen the adoption of real estate assets such as purpose-built student accommodation, modern warehouses and industrial parks,” he notes.
According to the report, the expectation for sustainable buildings by multinationals is creating a fresh opportunity for real estate investors in this market.
''Investors in office properties are increasingly incorporating environmental sustainability aspects into their designs to enhance resource efficiency and low carbon footprints,''Knight Frank said.
The report indicates that with Kenya’s growing digital industry and interest by technology giants, there is an attractive investment opportunity in smart offices that go beyond the physical building.
''They provide amenities such as occupancy sensors, water-efficient solutions, meeting room and parking solutions, that are delivered to international standards,''Knight Frank Kenya head of Capital Markets Anthony Havelock said.
Some of the firms investing in innovation hubs in Nairobi include Microsoft Africa Development Centre, Visa’s innovation studio, Google’s Africa product development hub and Amazon Web’s AWS Local Zone Hub.
The Cube, Promenade, Absa Bank, Caxton House and PTA Complex are amongst properties that have attained coveted EDGE or LEED certifications.
''It is the future of the industry globally and we expect it to continue growing in demand even by local businesses”Havelock said.
