Oversupply and tough economy exert pressure on prime property rents and values

Oversupply and tough economy exert pressure on prime property rents and values

Prime residential rents and sale prices in Nairobi declined in the first half of 2019 due to continued oversupply of high-end developments in some locations and a credit crunch that has affected money circulation and spending power.

Report on Residential tenancy and fee

According to Knight Frank’s report on Kenya rental Market, during the 1st Half 2019 prime residential prices fell by 1.8%, increasing the annual drop to 6.7% in the year to June. Prime residential rents reduced by 1.7%, taking the annual decline to 3.3% during the earlier mentioned period.

The report states that these factors have distorted the market in favor of buyers and tenants, which has been worsened by the continuing downsize of multinationals and the dwindling number of expatriates moving to Kenya. Generally, this had a negative effect on the niche market.

Report on Retail space value and occupancy

In the retail market, rents for prime spaces in shopping malls decreased by 5.9% during that particular period to US $4.8 a month per square foot. Property-owners remained under pressure to provide concessions in order to attract new tenants as well as retain the existing ones. The pressure was exacerbated by tough economic conditions that have left most consumers with less disposable incomes, directly impacting on retailers.

Tenancy levels in established malls remained high at 90% in the first half while new retail developments (completed in the last 18 months) recorded occupancy levels of between 45% and 55%. Current and new tenants developed a tendency of preferring to take up space within extensions in established malls to tap into the existing clientele rather than open shop in new retail centers. Overall, footfall increased over the six months due to the presence of fully operational anchor tenants in most shopping malls.

Report on Office space tenure and charge

Prime rents in the office market in Nairobi remained unchanged in the first half of 2019 at US $1.3/sq ft/month, with the occupation of Grade A and B space declining by 8% compared to the second half of 2018.

The report states that some landlords are providing concessions such as longer fit-out periods, partial contributions towards tenant fit-outs or giving discounted rentals so as to maintain existing tenants and attract new ones. This appears to be a consistent theme across the market.

Nonetheless, the office market has benefited from shared work space providers on the back of demand from small and medium enterprises, maturing start-ups and multinational firms entering the country. Serviced office space is growing in popularity owing to the flexibility it provides in comparison with traditional office accommodation. The target market is expected to continue recording growth over the next few years as new entrants establish themselves whilst existing providers expand.

In the period under review, several serviced office providers opened new facilities, with home-grown co-working space provider Workable opening a 12,000-sq ft shared workspace facility in January at Sanlam Towers, while Nairobi Garage opened its third 14,000-sq ft co-working facility at The Watermark Business Park, Karen, in February.

 

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