Business: Office Space Rent Down As Supply Rises According To Knight Frank Report

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The Knight Frank Kenya report on the Kenyan Real Estate Market, quarter 1 report for 2018 shows that demand of high quality ‘Grade A’ & B office space increased by 12% in H1.

‘Grade A’ offices are structures built to international standards, such offices are occupied by international and local companies with high net worth clients. Nairobi commercial offices that are pure ‘Grade A’ are a small percentage with Gigiri being one of the hubs known to have offices of this kind.

Increase in uptake of high quality office space is as a result of improved political climate after the prolonged electioneering period ended and recovery of the economy. Data by Kenya National Bureau of Statistics indicate that the Kenyan economy expanded by 5.7% during the first quarter of 2018, this is a 0.9% increase compared to the performance of the economy in the first quarter of 2017. Global and local investors are bullish about the Kenyan economy.

Knight Frank further notes that there was a marginal drop in prime office rents to US$1.3/SqM/M. The firm, however, expects a significant increase in prime office rent due to economic recovery.

The report shows an overall upward trend in the housing sector in Kenya. Nairobi’s residential high-end home prices rose by 0.4%. The Prime residential rents rose up 0.33%. This increase is attributed to favourable political climate and the wait and see the attitude of homebuyers and investors.

In the retail sector, Prime retail rents flat stood at US$55/SqM/M. Despite spaces in malls charging a premium, occupancy in established malls stands at 90% and between 60 and 75% in new malls. This is an indicator that the malls are in high demand and that the economic conditions are favourable for traders and investors.

Local and international supermarket chains such as Naivas and Carrefour have continued to take up retail space created by Nakumatt and Uchumi.

Retail development in the pipeline as shown in the report include Westgate Mall Phase II 14000 SQM, Diamond Plaza II 8361 SQM and  The Waterfront Mall 19509 SQM among others.

“Kenya currently has an accumulated housing deficit of more than two million units, according to official statistics.” Notes the report. The government’s ‘Big Four’ agenda on affordable housing is expected to reduce this deficit and avail Kenyans decent housing.

The twenty-year-old research firm has an aerial view of the property market in Kenya, an industry it has been devoted to since it was established in 1998. From their research, twenty years ago, Westland office rent was at Ksh 35,000 today, it stands at Ksh 120,000, and this is 242.86% increase. Upperhill rent office has increased by 175% from Ksh 40,000 in 1998 to Ksh 110,000 in 2018.

Their report further shows that land price at Karen increased by 3250% from Ksh 2,000,000 per acre in 1998 to Ksh 65,000,000 per acre in 2018. Land price at Westlands has skyrocketed by 2900 percent from Ksh 20,000,000 per acre in 1998 to Ksh 600,000,000 per acre in 2018.

What does this mean to homebuyers and investors? These prices are expected to increase even further because of future development plans of the private and public sector. For a common mwananchi who is looking to buy land as an investment option, Real Estate Investment Trusts (REITs) is a great option. REITs are investments instruments that create a pool of funds from different investors who become shareholders, the money is invested buying land, building and renting out. Income earned is distributed to the shareholders.

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