Oversupply of commercial space in Nairobi continues to strangle earnings

An oversupply of commercial space in Nairobi is strangling earnings that property owners expect to make, Anthony Havelock, the Head of Agency, Knight Frank Kenya has said.

While commenting during the launch of Knight Frank’s inaugural Africa Office Market Dashboard for Q1 2021, he added that office market performance is still largely subdued owing to the lockdown restrictions imposed towards the end of Q1 which impacted negatively on market activity.

“There remains an oversupply of commercial space in most districts across the city which together with the slowly recovering economy and working from home dynamic has given occupiers the upper hand in lease term negotiations and forced landlords/developers to be more flexible,” Anthony Havelock remarked.

According to Knight Frank’s 28-city composite index, which tracks office rental performance in some of Africa’s most prominent cities, prime office rents remained stable during Q1 2021.

The performance of office rents across Africa remains mixed. Like most other regions around the world, African cities have seen diminished office demand, which has been exacerbated by the economic fallout as a result of the pandemic.

Mr. Havelock said that positively as the global vaccination rate has increased and with some lockdown measures improving, they are seeing multinational occupiers looking to re-occupy their spaces and relook at their strategies which in turn is leading to increased market activity.

The report affirmed that occupancy levels unchanged at 70 percent in Q1 2021 same as Q4 2020.

Office rental rates dropped marginally from US$1.3 per square foot (sq. ft) per month in Q1 2020 to US$1.12 per sq. ft per month in Q1 2021

Tilda Mwai, Knight Frank Researcher for Africa explained, “Each market has continued to be impacted by unique factors beyond the pandemic such as currency fluctuations in South Africa, the political climate in Lusaka and a supply glut in Johannesburg and Cape Town.

“On the other hand, locations such as Kampala are expected to record a rise in occupier activity due to the recent signing of the East African crude oil pipeline project which we expect will drive up demand from the oil and gas sector in particular”.

Financial services and the technology sector have been the most notable sectors driving occupier demand mirroring trends in the global market, according to Knight Frank.

Looking ahead, Knight Frank anticipates that the prime office market across the continent will remain tenant favourable throughout 2021. Trends on consolidation of space and flight to quality are likely to continue as occupiers seek to leverage on the weaker market conditions to upgrade the space occupied.

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