The Star (Nairobi)

13 February 2013

Kenya: Office Space Demand in Nairobi Now Stable

Nairobi's office space market has moved from a position of oversupply to one of stability over the last 12 months, according to the Knight Frank Africa Report 2013.

Demand has been upped by large corporations setting up offices in the Kenyan capital which is restating its position as the regional commercial hub of sub-Saharan Africa.

"A significant proportion of the recent take-up has been due to large corporation setting up regional headquarters in Nairobi, in preference to the traditional regional hub of Johannesburg, mainly because of new routes opened up by Kenya Airways which enable direct flights to Central and West Africa," Ben Woodhams, the Knight Frank Kenya managing director says in the report.

The global real estate services provider says Nairobi among fast-growing cities - with the likes of Lagos and Luanda - "that are likely to be increasingly the hotspots for investors" going forward.

This corroborates a recent report titled African Cities Growth Index by MasterCard, a global payments and technology firm, which ranks Nairobi sixth out of 19 sub-Saharan Africa cities in terms economic growth potential over the next five years.

This allies fears that demand for office space may not be high enough to sustain further developments as many office blocks are being offloaded into the market at present.

In the retail space market, Knight Frank says the sector continues to see an increase in decentralised urban shopping malls within Nairobi and secondary cities of Mombasa, Nakuru, Eldoret and Kisumu.

It says recent additions such as Galleria Mall, The Junction Phase Two and Roysambu Mall in Nairobi and City Mall in Mombasa have brought new entrants into the retail sector such as Kentucky Fried Chicken (KFC), with South African retail stores Game expected to open at upcoming Garden City Mall on Thika Road in Nairobi.

Other malls in the pipeline in Nairobi include the Mall of Kenya at private Tatu City and investment firm Centum's Two Rivers development in upmarket estate Runda.

The report says the middle-income residential market has recorded a drop in sales volume owing to expensive mortgages, but the top-end segment has remained largely unaffected.

"A rapid increase in interest rates from 16 per cent to 25 per cent in the final quarter of 2011 led to a slowdown in residential development, which was in danger of overheating at the time," Woodhams says in the report.

Knight Frank pegs prime rents for office space at $15 (Sh1,300) per square metre per month, with rental yields of nine per cent annually. Prime retail space rental prices are pegged at $31 (Sh2,700) per square metre per month, with yields at 10 per cent a year.

Prime residential space is being let at $4,400 (Sh385,300) per month for a four-bedroom executive house in Nairobi's upmarket residential estates, with rental yields of six per cent.

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