Things look up again for office market after pandemic hit

Demand for office space in Nairobi is getting back to the pre-pandemic levels as employees begin to fully return to the office.

According to real estate services consulting firm JLL, Nairobi and other East African gateway cities of Dar es Salaam, Kigali and Kampala, have all witnessed a recovery in demand for office spaces, thanks to a gradual return in business confidence, which is expected to drive increased occupier activity throughout 2022.

The trend, according to JLL, underlines the importance of the physical office to companies.

“Whereas most companies now have their employees working from the offices as was the case before the pandemic, most of them have adopted a hybrid working strategy,” said JLL’s Wayne Godwin, head of East Africa and the Indian Ocean during the recently-concluded 9th Annual East Africa Property Investment in Nairobi.

For several months since the first official case of Covid-19 was reported in Kenya, most companies operated a hybrid system of working – allowing staff to go to the office for some days and work from home in others.

Others allowed staff to work in shifts. But after the reopening of the economy, most firms have almost all their staff fully working from the office, which has seen a rise in demand for office space.

“We are returning to fully working from offices as working from home fatigue is setting in,” said Shadrack Mella, JLL’s lead valuer, East Africa.

Recent studies on the Nairobi office market bear them out.

Cytonn’s Nairobi Metropolitan Area Commercial Office Report 2022 says that last year, the Nairobi Metropolitan Area commercial office market witnessed an improvement in expansion activities by various firms, and its overall performance, compared to 2020.

The report attributes this to the reopening of the economy after the government removed Covid-19 lock-down measures. This in turn led to a slight increase in the overall occupancy rates of the commercial office sector, as well as the overall rental yields, the report says.

“The remote or hybrid working model which continues to be embraced by some firms continues to weigh down the overall occupancy rates of office spaces and the overall returns to landlords. Notably, though, a shift to a hybrid working model by companies that had adapted the full remote working model will help boost office occupancy rates,” it says.

Even during the pandemic, the supply of new office space in Nairobi continued to increase with the addition of three other commercial buildings offering up to 500,000 square feet. The new developments are the Global Trade Centre (GTC) and Riverside Square - both in Westlands, and Karen Green in Karen.

“We expect the office space supply to further increase in 2022 with the addition of other various developments in the pipeline totalling 600,000 square feet of space,” says the report, citing some of the new major developments such as The Cube and Sandalwood both located in Riverside, and One Principal Place and the Piano - both located in Westlands.

According to Cytonn, the addition of office spaces against the existing demand in Nairobi led to an oversupply of 6.7 million square feet in 2021, and in turn affecting the overall occupancy rates of the buildings.

This has seen some developers halt their construction plans as they await the absorption of the existing office spaces. A Kenya update report by Knight Frank shows that absorption of Grade A and B office space increased by about 60 per cent in the second half of 2021 from the first half of 2020.

This dramatic increase was mainly attributed to the reopening of the economy and the roll-out of Covid-19 vaccinations, which has enabled employees to physically return to their offices.

The increased absorption was also as a result of pent-up demand from 2020, which was mainly in the A grade stock, says the Knight Frank report.

However, the report says the office sub-sector could soon slow down as more space is released into the market. “We expect that the occupancy rates will fall because of the large amount of space released in the market towards the end of 2022,” noted the report.

According to JLL’s Shadrack Mella, these trends are a confirmation that the office space is here to stay.

He cites a recent email by Tesla chief executive, Elon Musk, ordering employees to be physically present at the office and work for at least 40 hours per week.

“When you think of a huge global technology company like Tesla wanting employees to work from the office, that sort of summarises the importance of the office. How companies use office space will probably change, but the office will remain. Companies will slowly come back to normalcy - using office space,” he said.