Nairobi headed into an oversupply of offices - report

A section of westlands in Nairobi taken on 7th January 2015. [PHOTO:WILBERFORCE OKWIRI/ Standard]

An office space glut is looming in Nairobi following record levels of new office buildings due to open in the capital this year, says a new report.

According to a new Mentor Management Ltd (MML) 2015 office report released last week, most new office buildings due for completion are on the outskirts of Nairobi. Oversupply of offices are likely to be seen in Upper Hill, Westlands and Waiyaki Way. It could take the market over four years to absorb the supply, says the report.

It adds that long-term vacancies are likely to be concentrated in Grade B offices. Congestion, which is severe in some areas of Nairobi, is fuelling the move of businesses to outer nodes around the city, seeing organisations migrate to offices in Karen, Thika Superhighway, and Limuru Road to cut commuting and parking costs.

Take up of office space on Mombasa Road, long hampered by traffic jams, is likely to see a revival on the opening of the Southern Bypass, MML reported.

"With more than another three million square feet coming on stream this year, tenants have more choice and will shop around for convenience and quality at the best price, which, for many, is likely to point them towards the city's outer office nodes. Nairobi may not end up with its own Sandton, but instead, it may now have a number of concentrations of office space around the outer city," said James Hoddell, CEO of MML.

Within inner Nairobi, the majority of new office space in 2015 and 2016 is opening in Upper Hill, Westlands and Waiyaki Way, which together account for 68 per cent of the city's new office space.

"The few buildings opening in Upper Hill and Westlands that have been built to deliver viable parking ratios, quality finishes and well-planned working spaces, will still fill," said Hoddell, who believes that the long-term attractiveness of fractionally-sold offices will not be the same as that for centrally-managed buildings.

He said the volume of office construction and planning has barely slowed since 2013, despite the market being now clearly over supplied in some areas and types of buildings.

"The boom in completions this year is coming three years on from the record office space planning applications in 2013, delivering some 3.8 million of new office space, compared with the previous 2011 record of 2.3 million square feet," he said.

In 2015, just over two million square feet of new office space was completed in the city. However, the demand for new office space has remained almost constant, rising from 1.3 million square feet in 2014, to 1.33 million square feet in 2015.

But despite the heavy levels of construction, there remains a shortage of top quality office space offering ample parking, easy access, and international quality finishing, which define a Grade A office.

"The impact of the looming oversupply is set to be felt most heavily in Grade B office space, where the new space is more than doubling," said Mr Hoddell.

The supply of new Grade A space was constant in 2013, 2014, and 2015, at one million square feet.

But the supply of new Grade B space rose from 631,400 square feet in 2013, to 725,991 square feet in 2014, and one million square feet in 2015, and is now expected to reach 2.24 million in 2016.

The report said new Grade A offices, even in peak supply areas such as Upper Hill and Westlands, are still leasing fast. "The reality is that even in something of a building glut, developers are still offering very few office buildings that are the kind of offices that tenants want to lease," said Hoddell.