Outlook Negative for Nairobi Commercial Office Due to Oversupply

The outlook for Nairobi Commercial Office remains negative with continued oversupply and decline in occupancy rates and yields, according to a report by Cytonn Real Estate.

Nairobi Upper Hill area recorded a 0.6% points decline in the average rental yields which came in at 6.9% in 2020, from the 7.5% recorded in 2019.

The outlook for Nairobi Commercial Office remains negative with continued oversupply and decline in occupancy rates and yields, according to a report by Cytonn Real Estate.

“This is attributed to the reduced demand for commercial spaces brought about by the COVID-19 pandemic amid the tough economic environment as some firms downsize due to financial constraints while others embrace the working from home concept,” Cytonn Real Estate says in its Commercial Office Report 2020.

According to the report, asking prices and rents have continued to decline as landlords endure giving discounts and concessions to attract and retain clients. 

Asa result, the oversupply in the commercial office is expected to continue affecting the demand for office spaces.

We had an oversupply of 7.3 mn SQFT of office space in  2020, and it is expected to grow by 1.1 per cent to 8.0 mn SQFT in  2021, due to reduced occupancy rates,” part of the report reads.

In 2019, there was an oversupply of 6.3 mn SQFT of office space.

Outlook Negative for Nairobi Commercial Office Due to Oversupply
The Nairobi CBD recorded a 0.3% point decline in the average rental yields to 6.8% in 2020 from 7.1% in 2019.

In terms of demand, the report projects a neutral outlook with investment opportunity being in differentiated concepts such as serviced offices offering yields of up to 11.2 per cent compared to 7.0 cent average rental yields of unserviced materials.

“Investment opportunity exists in zones with low supply and high returns such as Gigiri and in differentiated concepts such as the serviced offices recording average rental yields of 11.2 per cent, 4.2 per cent higher than the market average of 7.0% per cent.”

In 2020, serviced offices recorded yields of 11.2 per cent, 4.2 per cent points higher than the unserviced offices’ yield of 7.0 per cent.

Westlands and Karen were the best performing nodes recording rental yields of 15.9 per cent and 14.8 per cent, compared to 7.6 per cent and 7.8 per cent for Unserviced offices respectively in the same areas.