It was a bad year for not-so-glittery offices

Kenya: Whereas demand has generally been high for commercial buildings in 2013, office blocks in some locations in Nairobi have remained empty, writes NICHOLAS WAITATHU

The uptake of commercial space in some market segments remained low in 2013 despite high demand. Many commercial buildings around Nairobi are lying empty as businessmen avoid due to poor location and inappropriate designs.

The market requires about one million square feet of commercial space annually, but the government and the private sector only supplies 500,000 square feet.

Reginald Okumu, a property consultant, says commercial buildings coming up in some areas are poorly designed. Developers also use poor marketing strategies, thus reducing the appetite of entrepreneurs seeking space to set up businesses. 

“Investors are shying away from investing in the completed spaces as some do allow favourable environment for business operation. Others are in security-risk,” said Okumu. 

In Nairobi’s Central Business District and other office hotspots like Upper Hill, Westlands and Mombasa Road, available commercial buildings are occupied by government ministries, parastatals and other agencies and private companies.

Major renters

Other major renters include international development institutions like the World Bank, International Monetary Fund (IMF), non-governmental organisations, religious groups and business groups.

The same trend is also being seen at the county levels where some governors have been forced to seek spaces in private commercial buildings.

“The government is the main occupant in most of buildings in the CBD and its environs,” said Okumu.

Edward Kirathe, the Group Executive Officer of Acorn, a leading real estate development and project firm, says slow uptake in the market could be in selected market segments in urban centres.

“Indeed, slow demand of commercial buildings is expected in some market segments. That include upper segments where developers quote high rates to recoup their investments,” said Kirathe.

In Nairobi’s Central Business District, Kirathe said, demand is over 90 per cent as buildings coming up are booked even before they are completed.

As part of rebirth of the urban centres like Nairobi, developers are demolishing old buildings and putting up new modern highrise office blocks to accommodate increasing demand.

But Anthony Mugo, a director with Peninsula Development Company, said the uptake of commercial space was high across the board, a situation he credits to high inflows of investments into the country.

He said Kenya is attracting a high number of investors owing to its strategic position in the region. “For the last five years, more international companies have settled in the country as they prepare to expand their businesses in the region. Their coming into the market has increased in prices of both rental commercial sales,” said Mugo.

It is feared landlords are likely to experience reduced profit margins, as they will be forced to lower their prices or risk their building abandoned.

For the last five years, there has been an increase in construction of commercial buildings in urban centres, a situation largely attributed to improvement in the economy.

Lee Karuri, Home Afrika Chairman, said that currently, there are more units to use for businesses compared to five years ago. 

“Owing to the improvement of economic fundamentals like infrastructure, water provision, boost in energy production, more units in the commercial segment have been constructed,” said Karuri.

He said commercial property developers have been responding to genuine growth factors in the local market. “To increase the uptake of finished units, developers will have to lower their prices and equally enhance marketing strategies,” he added.

Sluggish uptake

Mentor Holdings Executive Chairman, Daniel Ojijo, concurred that there is sluggish uptake of commercial space in isolated market segments.

“For the last five years, we have witnessed high demand in residential and commercial buildings. This is due to the rebound in the economy and renewed interest in the country by local and international investors. However, uptake of the units is still low in limited pockets of the market,” said Ojijo.

Demand for commercial building has been characterised by high rental prices in the last five years.

Ojijo observed that five years ago, one square foot of office space was costing between Sh10 and Sh50. That has increased to Sh110 and Sh150.

“Our industry is driven by demand and supply,” he said.

Nairobi County Governor Evans Kidero said that on average, 400 new construction projects are approved every month.

Ben Woodhams, Managing Director of Knight Frank Kenya, said in a telephone interview that the uptake of commercial buildings in the country is high, attributing it to the fact that new enterprises are coming up every day.

“Currently, we have shopping malls we are letting in Karen, on Thika Superhighway and along Limuru Road. Demand for commercial structures has been high even after the Westgate terrorist attack. Many more businesses are being registered every other day in Kenya,” said Woodhams.