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Office space occupancy falters due to increased supply

By Mumbi Kinyua | Updated Sat, January 7th 2017 at 00:00 GMT +3

Over-supply of office space has led to a marginal decrease in occupancy in the commercial sector. This is according to a real estate review by Cytonn Investments released yesterday that said the segment saw a one per cent decline in 2016 from 89 per cent in 2015.

“Despite the decrease in occupancy, the yields remained attractive at 9.4 per cent driven by demand from growing companies in professional services and global corporations seeking space for regional operations,” the report noted.

The industrial sector recorded an average performance with rental yields at Sh35 per square foot. “Developers are increasingly shifting to emerging industrial zones such as Athi River and the Eastern Bypass due to availability of large tracts of land at relatively lower prices,” added the report. In 2016, the sector recorded significant growth supported by the increase in demand by individuals looking to purchase property and increased institutional investor demand.

Yields from commercial sector and capital appreciation averaged at 10 per cent in Nairobi leading to the sector’s average returns at 25.8 per cent. “Rental yields averaged about 5 per cent for residential houses to 10 per cent for commercial sector and capital appreciation in Nairobi leading to the sector’s average returns at 25,” said Cytonn Investments Chief Investment Officer Elizabeth Nkukuu.

The best performing high-end residential markets in real estate were Karen and Runda with returns of 12.7 per cent and 11.3 per cent respectively. High yields were driven by high rental rates averaging Sh216 per square foot, versus an average of Sh186 per square foot for Nairobi, due to its up-market location and retail offering.

Upper-mid end residential market performance was also high with markets like Ridgeways and Kilimani recording yields of 5.4 per cent and 3.9 per cent respectively. Other regions such as Mt Kenya and Kisumu have seen growth through increased mall space supply according to Johnson Denge, Cytonn’s real estate manager. “With occupancy at 90 per cent and rent at Sh151 per square foot, Mt Kenya was among the best performing retail markets, with a 10.1 per cent yield,” he added.