Demand for commercial space in Nairobi to increase in 2016 and 2017, report

An aerial view of buildings in Upper Hill Nairobi as captured in 29th January 2016. PHOTO: WILBERFORCE OKWIRI/STANDARD

NAIROBI: The growth of the economy in 2016 will result in an undersupply of commercial office space in Nairobi, says a new report.

According to the report by investment firm Cytonn Investments, there will be an undersupply of about 3.6 million square feet in 2016 and 6.1 million in 2017 as demand for offices especially Grade A offices in markets such as Westlands, Parklands and Gigiri peaks.

The report noted that a mix of economic factors including the growth of Kenya as a regional hub which has seen a number of global corporations set base in the country.

Other factors that will contribute to increased demand of commercial offices will include the growth of professional services and SMEs who will demand more office space.

And as devolution takes root more offices will be created outside Nairobi by as the different county governments look for space.

"Supply of office space in Nairobi has been increasing over the last five years at a CAGR of 27.5 per cent, from 1.6 million square feet in 2011 to 5.4 million square feet in 2015," said the Real Estate Service Manager, Johnson Denge.

Denge noted that despite increased supply of office space, occupancy rates have remained relatively high at 89 per cent due to increasing demand.

"We project that 2.5 million square feet of offices will be an undersupply by 2017, assuming occupancy of current stock remains constant, as demand for office space by both local businesses and multinationals continue growing," read the report in part.

The report which relied heavily on data from the Kenya National Bureau of Statistics (KNBS), the City Council of Nairobi (NCC) and its own data, painted a positive market outlook for real estate in 2016 and 2017 with yields and rents also expected to go up.

However, previous reports from global property consultancy Knight Frank showed that the real estate market edged towards an equilibrium position.

In a quarterly report released in October 2015, the firm attributed this to downsizing of regional operations by a number of multinational companies – particularly in the extractive industry.

A slowing down demand in the capital's commercial and residential property markets also contributed to this scenario.

"The performance of our Prime Global Rental Index closely mirrors global GDP and with sluggish growth considered 'the new normal', the heady days of 5 per cent annual growth look unlikely to be repeated for some time. This is good news for high-end residential tenants," said Kate Everett-Allen, Knight Frank's Residential Research Partner.

However, the CEO of Cytonn Edwin Dande said that while there was some softening in rental appreciation in Nairobi, this should be looked at within the context of 2015 when the economy battled some headwinds including a volatile currency exchange rate, high interest rates, and insecurity.

He noted that there was still rapid urbanization, a surge in the middle class numbers and increased infrastructural development which should contribute to increased demand going forward.