columnBy Francis Gichuhi
Office space in Nairobi's CBD and its environs has become quite scarce owing to high demand. Many firms are now seeking space in the outskirts of the city centre either for rent or owner-occupier.
Currently, occupancy rates within the CBD are above 90 per cent for office space and so is the case for other commercial locations in the outskirts of the CBD such as Westlands and Upper Hill.
As a result, new commercial buildings are rapidly coming up in the outskirts of Nairobi. For instance, about five office buildings have been completed in the last one year in Westlands along Woodvale Grove. Huge office buildings have also been built along State House road and in Lavington. It has been the same case along Waiyaki Way where large firms such as Deloitte Kenya have occupied its own office block near Nairobi School. Safaricom House pioneered in the move along Waiyaki Way and now several office blocks have been completed since then, with numerous others now near completion.
Barclays Bank of Kenya has also moved to a new office block between Safaricom House and Aga Khan High School, while an expansion of the ABC Place is currently going on. Still, there are acres of prime land fronting Waiyaki Way on the way to Kangemi suitable for such developments. Land in this stretch is slightly cheaper than that in Upper Hill. An acre in Upper Hill goes for about Sh200 million while the same goes for about Sh150 million in Westlands. Rental prices are more or less the same for both areas at an average of Sh100 per square foot per month.
Return on investment
The current cost of construction for high-end office buildings in Nairobi is about Sh60,000 per square metre. Assuming you want to build on an acre of land with a 50 built up area, this will make about 20,000 square metres of floor area for a 10-storeyed building. The total construction cost will roughly come to about Sh1.2 billion. Land cost would be Sh150 million in Westlands or Sh200 million in Upper Hill, bring total costs to Sh1.35 billion and Sh1.4 billion at these locations respectively.
If the offices are for sale, the average price per square meter is about Sh120,000. The 10-storeyed building would therefore fetch about Sh2.4 billion on sale, which would be 100 per cent return on investment with profits of a whooping Sh1.2 billion. Since the overall costs are almost equal in both places, most developers would therefore find Waiyaki Way a better deal since land is relatively cheaper than in Upper Hill and more readily available as well. The same is the case when it comes to rental income since the prices are the same. Upper Hill is however easily accessible from the CBD for high-end users who want the luxury!
Arch. Gichuhi is a principal consultant at Nairobi-based A4architect.