Demand for office space to increase in 2016, says report

Cytonn Investments CEO, Edwin Dande Photo/Elvis Ogina (Nairobi)

Growth of the economy in 2016 will result in an under-supply of commercial office space in Nairobi, says a new report.

According to the report by Cytonn Investments, there will be a deficit of about 3.6 million square feet in 2016 and 6.1 million in 2017, as demand for offices, especially Grade A offices in upmarket areas of Westlands, Parklands and Gigiri peaks.

The report cited a mix of economic factors, including the growth of Kenya as a regional hub which has seen global corporations set base in the country as the reason for increased demand.

Other factors that will contribute to demand for commercial offices include growth of professional services, growth in SMEs and the devolved Government system.

However, previous reports earlier released by global property consultancy firm, Knight Frank, showed the real estate market edged towards an equilibrium position and not under-supply as cited by Cytonn Investment.

The Knight Frank report attributed this to downsizing of regional operations by a number of multinational companies – particularly in the extractive industry.

A slowing down demand in the capital’s commercial and residential property markets also contributed to this scenario.

“The performance of our Rental Index closely mirrors global GDP and with sluggish growth considered ‘the new normal’, the heady days of five per cent annual growth look unlikely to be repeated,” said Kate Everett-Allen, Knight Frank’s Residential Research Partner.

However, the Cytonn report relied heavily on data from the Kenya National Bureau of Statistics (KNBS), the City Council of Nairobi (NCC) and its own data to paint a positive market outlook for real estate in 2016 and 2017.

Cytonn CEO Edwin Dande said while there was some softening in rental appreciation in Nairobi, this should be looked at within the context of 2015 when the economy battled some headwinds, including a volatile currency exchange rate, high interest rates, and insecurity.

He noted that there was still rapid urbanisation, a surge in the middle-class numbers and increased infrastructural development, which should contribute to increased demand going forward.