Offices market hangs on amid Covid onslaught

A year ago this month, Covid-19 landed on Kenya’s shores and forever changed the workspace.

The virus sparked a work-from-home revolution that revealed the possibility of remote working and heralded the death of the office as it was.

Firms scaled down on expensive offices to cut costs while others realised they could do without them altogether.

This happened amid an oversupply of commercial offices, particularly in Nairobi.

Latest industry figures released yesterday show that the average office occupancy in the country stood at 72 per cent as at the end of the second half of the year.

The Knight Frank Africa Offices Dashboard H2 2020 shows that prime office rents fell 13 per cent in the period under review compared to the first half of 2020.

However, absorption of Grade A and B office space rose 13 per cent in the period, attributed to easing of lockdown measures and the gradual re-opening of businesses, which allowed multinational and local occupiers to proceed with key business decisions and finalise transactions.

Now experts say only long-term leases and rent renegotiations have kept the commercial offices market from collapse.

Covid-19 accelerated digitisation among Kenyan companies and also freed workers from the hassle of long commutes, thus increasing productivity.

For sectors such as banking, more people are embracing online transactions and the need for brick and mortar branches has reduced.

Standard Chartered Bank Chief Executive Kariuki Ngari said 89 per cent of their transactions are done online as customers shun banking halls.

This has seen the bank close some branches and merge others, and also invest more in technology including cash and cheque deposit machines.

“The future of real estate for banks will completely change. When I look at a building like this, I don’t think people will ever come back 100 per cent,” Mr Ngari told Home & Away.

He said with the current trend in the future of work that requires people not to be physically present and wasting time in traffic, offices might be needed less.

“A typical Nairobian today spends an hour in traffic. One can sleep more rather than wake up at 5am to spend time in traffic, and be more productive,” he said.

But what happens to buildings such as their seven-floor head office in Westlands? Ngari says it might have to be repurposed.

“We have to look at the usage of a building like this. Maybe when we built it, the building was exclusive for us. I don’t think going forward that’s going to happen, we’ll take three floors and lease out the others,” he said.

“I’m here today because you were coming to see me, I can comfortably work from my house. Technology has changed what an office was, we could even have done this on Zoom.”

The CEO said as the bank continues downscaling on branches, they might work in partnerships with, for example, cafes and fast food joints to lure people who still want to transaction at branches.

Knight Frank Kenya Managing Director Ben Woodhams said there are only two ways that big office occupiers can offload space and avoid collapse of the sector.

These include renegotiation of leases after expiry or if they can find a tenant who can come in and take the space and pay similar rent.

“Those two things will ensure that we don’t see the collapse of the office market,” he said.

Mr Woodhams said the serviced office sector is picking up faster compared to offices with long-term leases.

He said the serviced office sector had initially been badly hit by the pandemic as anybody could walk away without any encumbrances.

“Office occupiers want that flexibility that they get in serviced offices that they can’t get in long-term leases,” he said.

“As they return to work, they want that flexibility and serviced offices provide the perfect solution for them.”

Woodhams said companies will require less office space going forward, but argues that more space now is good for the short term. This is because of social distance enforcement as staff return to work.

He said the workplace has evolved to be more flexible and dynamic and the split in the number of times one is required to the office weekly might become a trend.

He noted that the need for more recreational area within the office might “soak up” excess space in the office market and with Nairobi being a regional hub new businesses will crop up, further mopping up space.

“Ultimately, we have take-up every year in Nairobi as new businesses look for office space. So this space that is left behind by people shedding excess space will be taken up,” Woodhams said.

The absorption of new office space in Nairobi annually is between 500,000 to one million square feet, he said, which is set to only change slightly.

“It won’t be catastrophic. The office is important and here to stay.”

Woodhams said office rents have softened but argued that instead of lowering rents landlords should give short-term incentives.

“Rather than agreeing lower rents to live with for the whole lease term, it would be much better to agree rent at a conventional level but give a short-term incentive to tenants to get them come to the building or renew lease,” he said.

He pointed out that landlords are also servicing loans for their developments and should meet tenants halfway.

“Every conversation that a tenant is having with their landlord on inability to pay rent, the landlord is having a similar one with financiers on loan repayments,” said Woodhams.

He said going forward, office design is also bound to change to accommodate more wellness and green spaces, and there might also emerge workspaces closer to residential areas.