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Mentor Management Limited CEO James Hodell when they unveiled the Nairobi Office Market Report for the second half of 2014. [PHOTO:WILBERFORCE OKWIRI / STANDARD] |
NAIROBI, KENYA: The future looks bleak for office space developers in Nairobi, if the latest report is anything to go by.
Mentor Management Limited (MML) last week unveiled its Nairobi Office Market Report for the second half of 2014 with warnings of a looming glut of office space in Nairobi.
They predict that “overbuilding” could leave close to a fifth of the city’s newly built offices vacant by the end of 2016, mostly in Upper Hill and Westlands. “We predict that by the end of 2016, there will be over 2.8 million square feet of office space - 19 per cent of the total stock of new buildings delivered since 2009 - lying vacant. This excess supply of office space is expected to originate from Upper Hill and Westlands during 2015,” said the MML report, officially titled the Nairobi Commercial Office Property Report: On the Brink of Oversupply.
MML has identified nine office nodes in and around Nairobi. In most of the nodes, Grade A office buildings with ample parking facilities are still filling up quickly, the group reported.
RISING PHASE
MML reported that the five office nodes of Kilimani & Ngong Road, Waiyaki Way, Gigiri, Karen, and Thika Road were all still in a rising phase, while both Mombasa Road and the Central Business District are in a bottoming out phase, which may see these areas start to rise again in coming years, should planned infrastructure developments be forthcoming.
“As we have outlined, the city’s centres are now in different stages of the property cycle, with Mombasa Road and (the) CBD bottoming out, with rents no longer falling and occupancy levels rising,” said MML CEO James Hoddel. He said Westlands and Parklands, and to some extent Upper Hill, are beginning to peak with higher rents than other areas.
“We do now expect a glut in the city’s office space from the end of next year... but for Grade A buildings with ample parking, demand will remain strong,” said Hoddel.
According to the report, in 2014, the best performing office markets were Kilimani, which enjoyed 84 per cent take-up on the new offices delivered, and Westlands at 71 per cent take-up. The year also brought an acceleration in office building in the city’s outer suburbs, with Gigiri, Thika Road and Karen accounting for more than a quarter of all new office buildings delivered in and around Nairobi.
SLOWDOWN
The construction of Nairobi office buildings is, however, set to slow down. MML reported that planning approvals for new Nairobi office buildings fell by 73 per cent this year, from their all-time peak of seven million square feet in 2013.
Westlands and Upper Hill saw the largest increases in office rents, at 17 per cent year-on-year growth in average office rents, with Westlands offices now averaging Sh117 per square foot and running as high as Sh220 per square foot, while average Upper Hill office rents rose from Sh90 per square foot to Sh105.
According to Hoddel, availability of ample parking space is a key determinant in how quickly new office buildings are filling. “Only one in 20 of the city’s new office buildings meets the minimum international standards for parking, yet there is an absolute relationship between ample parking and speedy uptake,” he said.
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