Demand for Nairobi Grade A offices Rises as Firms Seek Quality

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The Nairobi commercial office space market is ready for Grade A offices taking advantage of current oversupply and upcoming developments.

Demand for high quality ‘Grade A’ office spaces is outstripping supply with notable recent Grade A developments experiencing high vacancy rates of between 50%-70% according to the joint study by Garden City Business Park and Pam Golding Commercial released on March 2.

The older office nodes are increasingly being avoided due to congestion and age of the buildings, suffering from poor asset management, limited car parking and lack of nearby amenities being factors that encourage businesses to move out to more modern and cost-effective options.

It also finds out that there has been an 11percent  decline in Grade A compared to 2016.

“Rental prices are expected to remain fairly unchanged over the short term due to downward pressure arising from oversupply in the market, but the Report predicts upward growth in rentals in the medium to longer-term with most of these denominated in local currency.”

The Garden City Business Park and Pam Golding report features summaries of building activity in Nairobi, supply and take-up levels, comparative rental rates and delivery by office-grade, and gives readers a snapshot of the market outlook.

“The real estate boom started to slowly deflate from 2016 and this research shows the market correction, which a lot of commercial developers have had to accept,” said Pam Golding Commercial Property Consultant Neha Sahi. “We thought it was important to understand how the market adjusted, and why, and to shine a light on the quality and quantity of actual commercial stock available.”

It coincides with Knight Frank’s Kenya Market Update 2nd Half 2019 also showed that the absorption of Grade A and B office space increased by 41% in the review period compared to the first half of 2019, ‘which is indicative that the oversupply situation has begun revising’ which was attributed to the closing of a few, large transactions of office space in recently completed Grade-A buildings such as serviced office providers.

“This trend of fewer but larger transactions is expected to continue in 2020 as Nairobi remains a major commercial hub and a favourite location for multinationals looking for regional headquarters. This is an indicator that the commercial market is slowly beginning to recover,” said Knight Frank.

Notable examples include Kofisi, formerly known as Eden Square Business Centre (ESBC), which opened a new co-working space in Karen, while Nairobi
Garage opened its fourth co-working space at The Promenade in Westlands in December, taking up circa 30,000 sq ft.

Oversupply, Tough Economy Continue to Push Down Retail Rents in Kenya

Garden City CEO, Chris Coulson said, “Our research shows that 2019 was a challenging year for the office sector and we believe the market is continuing to bottom out in terms of depressed rents and low absorption rates. Now is definitely the time to consider renting, negotiating good commercial terms and looking around for well-priced, modern Grade A space. We don’t expect these conditions to prevail, with a positive outlook for the medium term with improved rental levels to good quality office products.”