Capital FM (Nairobi)

26 April 2013

Kenya: Upper Hill, Westlands Preferred for Offices

Nairobi — Upper Hill and Westlands are the prime hubs for commercial property space in Nairobi accounting for over 70 percent of new office supply between 2009 to 2012, according to a recent survey by development and project management firm Mentor Management Limited.

Westlands saw the lion's share of new development in the city last year with 63 percent of Nairobi's office space delivered, although the balance is changing and Upper Hill is predicted to take the lead in 2014, accounting for 56 percent of all new office space.

Markets in Kilimani and Karen are expected to remain strong while Mombasa Road continues to suffer from over-supply and slow take-up resulting from traffic congestion deterring potential occupiers.

Future locations to watch are Thika Road and the Runda/Gigiri area where a number of developers are considering decentralised office developments, benefiting from the significant infrastructure improvements enjoyed in recent years by the northern suburbs.

Speaking after releasing the findings, Mentor Management Chief Executive Officer James Hoddell attributed the attractiveness of Upper Hill to the current infrastructure upgrades as well as the critical mass of financial services companies who have relocated to the area.

"Although the area is currently undergoing a dramatic supply increase with 10 buildings of almost 1.5m square feet due for delivery in 2013 and 2014, our research demonstrates that the space will be absorbed by growing demand and by 2015/2016, there will once again be a supply/demand equilibrium," he said.

According to the findings, Grade 'A' office space designed to international specifications has proved significantly more desirable to occupiers in all areas of the city.

Grade 'B' space, described as having lower car parking provision, less visibility and poorer specification has suffered however, with vacancy rates of 24 percent in all space delivered over the last three years.

"We see a number of examples of poorly-design or under-parked buildings in secondary locations which are struggling to find occupiers in an increasingly competitive market. This is mainly due to developers failing to take professional advice or research the market adequately before embarking on projects," he explained.

Rents for Grade 'A' space have seen a surprising level of growth as the last seven years has seen new building lettings grow by an average rate of 14.1 percent per annum.

The survey indicated that this growth rate, combined with annual contractual rent escalations of no more than 7.5 percent, means that landlords with longer leases are consistently finding that their assets are under-performing the market.

Hoddell added: "Overall, the rise in demand for office space in Nairobi is mainly being fuelled by the strong growth of the services sectors and the continued position of Nairobi as a regional hub, two factors which have directly impacted the commercial sphere."

The survey is the most detailed carried out to date on the Nairobi office market and uses information sourced directly by Mentor as well as data from leading firms of property agents and the Nairobi City Council.

The report also indicates that despite experiencing a tenant flight, the Central Business District (CBD) is expected to remain attractive to office occupiers looking to lease space as it offers lower rents, easy public transport access and the full range of facilities.

Future road improvements, particularly the planned elevated expressway on Uhuru Highway and Chiromo Road are expected to free up accessibility to the CBD from the South and West and will dramatically improve the prospects of the CBD, going some way towards reversing the flight of top tier business from the node.

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