Prices of office rents, land rise in second half of recovery year

Modern apartments [Courtesy]

Offices attracted higher rents in the second half of 2021, even as developers completed several Grade A office blocks in Nairobi.

According to Knight Frank’s recent Kenya Market Update, prime commercial office rents increased from $1.10 (Sh124.96) to $1.20 (Sh136.32) per square foot (sq ft) per month.

The increase in rentals was mainly attributed to the reopening of the economy. A significant amount of office space was also released into the Nairobi office market in the second half of last year.

“This included the iconic mixed-use Global Trade Centre (GTC) that comprises 625,000 square feet of offices, a retail component, four residential towers and a hotel,” Knight Frank said.

“Other completed developments include Hazina Trade Centre (234,000 sq. ft) in Nairobi’s central business district, Principle Place (120,000 sq. ft) in Westlands, The Convex (250,000 sq. ft) and Riverside Square (94,000 sq. ft) both in Nairobi’s Riverside area.”

Oversupply of space in major commercial nodes, which is expected to continue into this year, bugs the sector.

“In addition, the change in working patterns and adverse economic conditions have resulted in several organisations downsizing. Consequently, the sector continues to be a tenant’s market,” the report noted.

Absorption of Grade A and B office space increased in the second half of the year, and this was mainly attributed to the reopening of the economy and the roll-out of vaccinations, which has enabled employees to physically return to their offices.

“The increased absorption was also a result of pent-up demand from 2020, which was mainly in the A grade stock where there was a flight to quality. This led to the best space being taken up with vacancy levels rising in older stock,” Knight Frank noted.

However, there will be falling numbers going into the future due to the oversupply of space. “Co-working and the financial services sectors also contributed considerably to this absorption, which improved occupancies to 78 per cent up from 73 per cent in the first half of 2021. We expect that the occupancy rates will fall because of the large amount of space released in the market towards the end of 2022,” read the report.

Prime residential sale prices in Nairobi marginally improved by 1.2 per cent over the past six months to December, compared to a 1.1 per cent decline in the same period in 2020.

This was mainly attributed to the reopening of the economy as investment activity resumed with a reduction in the uncertainty that had been brought about by the Covid-19 pandemic.

Prime residential rents remained unchanged over the past six months due December, compared to a 4.17 per cent decline in 2020. “This stability in rentals is mainly attributed to the reopening of the economy, and landlords adjusting rental terms to accept lower rental prices,” Knight Frank said.

“The continued oversupply of residential developments in certain locations coupled with the current economic state still makes this niche sector a buyers’ and tenants’ market. This stability is reflected by increased occupancies across several high-end gated properties.”

Prime residential sale prices and rental rates are expected to remain stable in the first half of this year “due to the projected favourable economic environment and subject to containment measures put in place to deal with Covid,” the report.

Over the review period, said Knight Frank, notable progress was made regionally by both the government and private investors in the affordable housing sub-sector. “As of December 2021, the government had delivered 2,235 units under the affordable housing programme and had several ongoing projects across the country,” it said.

According to the Knight Frank (Y)our Space Report, just under one per cent of office developments in Nairobi have any form of green accreditation.

“However, developers are responding to the global trend and importance that occupiers now treat this issue is increasing, especially with new developments as over 20 per cent of the office supply in 2022 have achieved an EDGE Advanced Preliminary Certificate from Green Business Certification,” said Knight Frank.