Grade A offices: Our best is not good enough

Despite the robust construction of high rise office complexes, the country suffers from a shortage of premium offices.

A report released last week by investment firm Cytonn reveals that most of the offices rated Grade A do not meet internationally accepted standards.

*A view of Upper Hill, Nairobi, which is a hit with office developments.* (PHOTO: WILBERFORCE OKWIRI/ STANDARD)

30 per cent of commercial offices in Nairobi have a first class rating. Of these, only a paltry five per cent can rightly carry the Grade A tag comfortably. Gigiri is the only location with purely Grade A offices where 75 per cent of office stock is premium. Upper Hill comes in second.

On the other end of the spectrum is Mombasa Road with the lowest percentage of such offices at 11 per cent. This comes as a surprise to many since Nairobi has been touted as one of the major investment hubs on the continent. It continues to receive positive reviews internationally.

As a result, top notch global firms as well as local corporates such as banks, insurance companies, law firms and Saccos are increasingly expanding in a bid to bring services closer to their target market.

Locally, devolution has also brought the need for counties to set up offices all over the country.

These institutions have to make do with lower quality office spaces while paying high prices. Again, Gigiri has the highest grade A rents at an average of Sh140 per square foot, with the lowest rents being on Mombasa road at Sh81 per square foot. Selling prices range between Sh14,000 and Sh11,000 per square foot for the two locations respectively.

“Most of the grade A buildings do not meet international standards as they lack the requisite classifications such as ample parking space, structure, building intelligence and size,” states the Cytonn report.

Accepted standards

What then, are these internationally accepted standards for Grade A offices? According to realestate.about.com, Grade A offices ought to be the highest quality office space in the market. In many cases, these are the newly constructed and fitted with the top of the range fixtures and amenities. They should provide state of the art technical services such as high quality elevators, fittings and automation systems.

“Class A buildings are usually aesthetically pleasing, as they reside in high-visibility locations, such as metropolitan’s central business district. These spaces are normally maintained by reputable property management companies that keep them looking impeccable,” states the online real estate portal.

In addition, most Grade A offices are located in high rise buildings with central lobbies and should occupy more than 200,000 square feet. They also come at a cost, commanding prices way above the entire city’s average.

Johnson Denge, head of real estate division at Cytonn says Grade A offices must adopt a code of security and safe working environment that conforms to international standards.

He alludes to global practices where an employee may have as much as 30 to 60 square feet of office space to himself, a hard to sell concept for local offices. Few buildings in Nairobi meet this threshold.

“Multinationals are accustomed to the highest standards in affluent lands and would wish to have similar office space here. However, they have to settle for what is our best. On the other hand, some blue chip companies may opt to pay for an early lease and thereafter influence the way an office block will be built and customised,” says Denge.

In some instances, some large companies, especially financial institutions with a long term foothold in Kenya have decided to build their own offices, installing fittings and amenities they deem appropriate.

Interestingly, Denge says there is no policy in Kenya that requires developers to construct offices with certain standards in place.

“Local developers are interested in the bottom line above any other criteria. Hence, they are not obligated to go the extra mile and create spaces that measure up to international standards. Government can come up with stringent regulations that outline minimum premium office requirements,” he says.

Ben Woodhams, Knight Frank’s Nairobi office managing director says the grading of offices may vary from location to location. As an example, says Woodhams, London’s specifications may be somewhat different from what is offered in South Africa.

Woodhams says the lack of Grade A offices may not be bad considering that some foreign companies have scaled down their operations thus pushing some premium office stock back into the market.

Reducing business

“A number of companies in the oil sector have reduced their business owing to the vacillating oil prices. This results in more offices being added to existing stock. A company looking for such an office may negotiate lower rent or asking price,” says Woodhams.

Another factor to consider, according to Woodhams, is that a number of companies looking for prime offices are not moving from scratch but are moving out of equally better offices to what they consider prime spaces.

Cytonn projects a further increase of 3.6 million square feet in 2016 of commercial space driven by demand for offices especially for grade A offices. Time will tell if this addition will result in quality office space fit for the international market.