Election jitters cause more dip in office market

A view of office blocks at Upper Hill in Nairobi. [Wilberforce OKwiri, Standard] The wait-and-see approach adopted by Kenya's real estate sector due to the electioneering period created a lull in the market in the first half of the year. A market update from Knight Frank, however, says that the period recorded lower office occupancy compared to a similar period last year with prime offices being the biggest losers. "Office occupancy rate fell by just over five percentage points from the second half of 2021 to stand at 72.8 per cent as at the end of the first half of 2022. Absorption of Grade AB decreased by circa 30 per cent from a similar period in 2021 as the market slowed amidst the run-up to the August 9 General Election," said the report. "Consequently, the office market continues to be a tenants' market because of the oversupply of commercial space in major commercial nodes that is expected to continue in 2022." The report also projects that occupancy for office spaces in the city will increase as there are no major office developments expected in Nairobi in 2023. Hybrid version "This may potentially increase occupancy rates and prime rents in office buildings since most companies have either resumed a 'working from office' policy or adopted a hybrid version," says the report. Players in the industry are pursuing energy efficiency, with buildings that incorporate various Environmental, Social, and Governance (ESG) elements favoured. "Increased investor awareness and expansion of multinational corporations (MNC) into the Kenyan market has heightened the focus on sustainability in the real estate sector as most MNC's prefer developments that incorporate ESG elements. Over the review period, Absa Bank Kenya received an EDGE (Excellence in Design for Greater Efficiencies) certification after retrofitting its branches with greater efficiency components costing them Sh45 million and expected to cushion annual energy and water costs by 30 per cent and 33 per cent respectively, ergo cutting annual expenses by Sh25 million," the report notes. Elsewhere, on the back of an oversupply of properties in the sector, prime residential rents in the period under review declined by 2.2 per cent over the past six months to June 2022, compared to a 1.58 per cent decrease in 2021 over the same review period. Adverse economic conditions also contributed to this decline, said Knight Frank. Mortgage loans Prime residential sale prices, however, improved by 1.2 per cent in the same period. The marginal rise in prime sales is attributed to the reopening of the economy. "Though positive, the increase slowed down from 2.4 per cent in the first quarter of the year, 2022, due to the August 9 General Election. According to the Central Bank of Kenya, the value of outstanding mortgage loans increased by 5.3 per cent from Sh232.7 billion in 2020 to Sh245.1 billion in 2021. The value of non-performing mortgage loans increased by 1.8 per cent from Sh27.8 billion in 2020 to Sh28.3 billion in 2021. The ratio of non-performing mortgage loans to gross mortgage loans, however, dropped to 11.6 per cent in 2021, from 12 per cent in 2020," the report showed. Despite the slight decrease, both ratios were below the banking industry's ratios of 14.1 per cent and 14.5 per cent in 2021 and 2020 respectively. There was a 0.9 per cent decrease in the number of mortgages from 26,723 in 2021 to 26,971 in 2020. "This decline signifies that the number of mortgage loans settled was more than approved mortgage loans," said Knight Frank. There was a 6.9 per cent increase in the average mortgage loan size from Sh8.6 million in 2020 to Sh9.2 million in 2021, which was attributed to higher values of mortgage loans advanced in 2021. Increased overall bank interest rates resulted in a rise in average mortgage interest rates from 10.9 per cent in 2020 to 11.3 per cent in 2021, said Knight Frank. The average loan maturity term stood at 12 years in 2021 with a range of five to 25 years, compared to an average of 11 years and a range of 4 years to 20 years in 2020. Residential investment market The majority of banks - both in 2021 and 2022 - capped their loan to value (LTV) ratio at 90 per cent. "However, the market is experiencing a trend where banks are increasing the LTV ratio with the aim of increasing their mortgage accounts. In the prime residential investment market, the joint venture between Gateway Real Estate Africa (GREA) and Verdant Venture to build Rosslyn Ridge Residences, a 90-unit diplomatic community, wholly leased for 8 years to the US Embassy, at a cost of Sh5.52 billion, expects completion in the third quarter of 2022," the company said. Prime industrial rates increased by five per cent in the review period compared to the second half of last year. "The increase from circa Sh68 per square feet to circa Sh71 per square feet is mainly attributed to easing of mobility restrictions which propelled recovery of the industrial sector," Knight Frank said.

Election jitters cause more dip in office market

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Similar Articles

Big Tech on the spot amid rise in digital violence

How consistency, reliability spur grow of your business

Come clean on hidden debt or no deal, IMF's new ultimatum to Ruto

Key sectors that could lift Kenya out of 'hustle economy'

DIGGER JOBS

Digger Motors

Digger Real Estate

Election jitters cause more dip in office market

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS