Rents for Nairobi offices fall 20pc on glut, exodus of expatriates

A modern office block in Nairobi. PHOTO/FILE
A modern office block in Nairobi. PHOTO/FILE
Rental rates for prime office space and high-end homes in Nairobi have dropped 20 per cent and 13 per cent, respectively, over the past two years on oversupply and mass exodus of expatriates.

Knight Frank in its latest report highlighting property trends in Africa says that an oversupply of office blocks has seen the average monthly cost of prime leasing space falling 20 per cent to Sh1,648 per square metre since 2014.

On the other hand, average monthly rental costs for four-bedroom executive homes have dropped 13 per cent to Sh422,300 over the period.

“The high levels of new supply of commercial office space have negatively affected rental levels and occupancy rates,” Knight Frank said.

“Prime rentals declined (over the past two years), which is partly attributable to the exodus of a large number of expatriates following the downsizing of Kenya’s oil extraction industry.”

The falling rents are expected to hurt investors such as retirement funds and insurance companies that have invested billions of shillings into development of office buildings in Nairobi.

According to a recent report by Cytonn Investments, Kenya has an office space oversupply of 3.2 million square feet and this is expected to grow by 21.9 per cent to 3.9 million square feet by next year.

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This follows increased supply with completions growing at a five-year annual growth rate of 52.6 per cent, from 2.1 million square feet in 2012 to 7.4 million in 2016.

Cytonn expects the market glut to continue in coming months.

“We expect market performance stagnation constrained by the oversupply, slow-down in growth of financial services and SME sectors as well as the upcoming election, which will slow down demand,” Cytonn real estate services manager Johnson Denge said.

The firm says the opportunity in the sector lies in specific pockets of value such as in office zones with low supply like Gigiri, office grades with low supply and high returns such as grade A offices that have a 10 per cent market share and an average 10 per cent rental yield.

Kenya has a shortage of high-end industrial space, and this could be the next frontier in battle for high investment returns in coming years.

Editor’s Note: This story first published in our sister publication, the Kenya Homes Guide.