Nairobi Commercial market to stagnate in 2019 as oversupply halts prices, Knight Frank

Nairobi commercial office market will stagnate in the first half of 2019 due to the current oversupply and upcoming developments.

Knight Frank in its Kenya Market Update – 2nd Half 2018 report, highlighting the country’s real estate performance in prime residential, offices, retail, hotel and tourism, and industrial property segments over the period said continued oversupply in Nairobi’s prime residential market put pressure on prices and rents, resulting in declines last year.

The uptake of Grade A office space continued apace in the second half of 2018, although prime rents stagnated at US$1.3 per square foot per month owing to the current oversupply.

The report shows the absorption of Grade A office space rose by 63% in the six months compared to the first half’s uptake.

This coincides with Vaal Real Estate, a local realtor, who released ‘Investing In Nairobi -Real estate Oppurtunities Report’ highlighting the performance of the Nairobi real estate sector in 2018. “The current office space supply in Nairobi is estimated at 1.8 million m², with approximately 200,000m² delivered in 2018 registering a growth of 25% from 174,000m² in 2017.”

According to Vaal, Westlands Area takes the largest market share of quality office space supply at 31% followed by Upper Hill and Kilimani at 28% and 17% respectively.

“This is attributed to the review of planning regulations permitting higher densities and commercial user in areas that were initially designated for rthe esidential user. This supply is projected to continue growing in Westlands with the expected delivery of approximately 45,000m² by GTC Building by mid-2022.”

Cytonn Real Estate further says the commercial office sector has an oversupply of 5.3 mn SQFT. “This is expected to grow to 5.7 mn SQFT in 2019, with the completion of buildings such as Garden City Business Park along Thika Road and Global Trade Centre in Westlands.”

In the Knight Frank report, Serviced offices vis-à-vis traditional offices have gained traction, with demand driven by small and medium-sized enterprises (SMEs) for various reasons, which include: lower operating costs, risk reduction, lease agreement and office space flexibility, and providing SMEs the opportunity to be situated in prime locations.

Ben Woodhams, Knight Frank Kenya Managing Director, said: “With this increased uptake and a decrease in construction, we anticipate a rental recovery in the medium term.”