The demand for office spaces in Nairobi’s commercial hub fell to an eight year low in 2019 indicating the continued tough economic environment in the country.
According to the Cytonn Nairobi Metropolitan Area (NMA) Commercial Office Report 2020, demand for office space stood at 300,000 square feet (SQFT) from three million SQFT in 2018.
Available supply in the period stood at 6.7 million SQFT leaving a net oversupply of 6.4 million SQFT.
The sector remained curtailed by a worsening environment which featured insufficient access to finance, delayed processing of construction permits and insufficient infrastructure.
Private sector credit growth at the end of the year stood at a low 7.1 percent from a 14 percent five year average while the delay in the processing of construction permits in the NMA, prolonging project implementations timelines and raising costs.
Small and Medium Enterprises (SMEs) who make up the majority of office space takes in the city scaled down their operation owing to the deterioration of the country’s economic environment.
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“Demand for office space has primarily been driven by the growth of SMEs and the entry of multinational corporations,” notes the report.
Average rental yields and occupancy rates were at their record lowest in seven years at 7.7 and 80.5 percent respectively while asking rents fell by 4.3 percent in the period to Ksh.97 per SQFT.
“The office oversupply served as a bargain chip for tenants, forcing developers to maintain or cut prices and rents to remain competitive,” added the report.
Major commercial office completions in the year fell by 65.1 percent to 1.5 million SQFT, a mirror of the continued tough environment.
Rental yields in Gigiri, Karen and Westlands however remained above the areas average while worst performing areas included Thika road and Mombasa road.
Grade B offices, defined as spaces with 50,000 SQFT and 100,000 SQFT and with similar amenities to Grade A offices had the highest rental yield at 7.9 percent due to their lower asking prices.
Services offices maintained their attraction with rental yields at 12.3 percent due to their convenience to SMEs including lower setup costs and flexible leases.
The report maintains a negative outlook for commercial offices in the Capital with oversupply expected to peak in the next two years to 6.7 million SQFT.
The onset of the Covid-19 global health emergency is expected to deteriorate the business climate in the NMA resulting to lower domestic and foreign investments as many put their expansion plans on hold in anticipation of market developments