Commercial office space in Gigiri, Karen, and Westlands reaped the best returns for landlords while Mombasa Road and Thika Road were the worst performers in the first three months of 2020, The Nairobi Metropolitan Area Report 2020 authored by Cytonn Investments shows.
The report released on Monday shows at Ksh13,833 per square foot, office space in Gigiri recorded 80.4% occupancy levels while posting a rental yield of 9.2% compared to Karen where office space was rented at Ksh13,655 per square foot posting occupancy levels of 85.3% while yielding an 8.3% return for landlords.
Westlands was another hit with tenants posting 80.3% occupancy levels at Ksh12,370 per square foot while recording a rental yield of 8.3%.
For the poor performers, office space on Mombasa Road was renting at Ksh11,400 while posting occupancy levels of 66.5% and a rental yield of 5.5% while space on Thika Road was there for the taking at Ksh12,600 while posting occupancy levels of 80.4% and a rental yield of 6.3%.
“The outlook for the Commercial Office sector is NEGATIVE given the current office space oversupply and expected stagnation in performance in 2020 given the current Coronavirus pandemic,” said Wacu Mbugua, a Research Analyst at Cytonn.
“With the Coronavirus, many corporates have also now tested working from home, and as such, it is unlikely that occupancy levels will recover to the levels they used to be at previously, at least in the medium-term. However, we expect a slowdown in construction activities allowing the existing demand to absorb the current supply,” he added.
Cytonn attributes the good performance of Gigiri, Karen and Westlands to increased demand by businesses and multinational companies due to their proximity to the Central Business District (CBD), relatively good infrastructure network, superior locations and availability of quality Grade A offices enabling them to charge a premium on rentals.
On the other hand, Cytonn attributes the poor performance of Mombasa Road and Thika Road to inconvenient location as a result of traffic congestions and lower quality office space.
Classes of Offices
Grade B office spaces recorded the highest rental yields at 7.9% compared to Grade A and Grade C rental yields of 7.4% and 7.2%, respectively.
Conversely, Grade B office spaces posted occupancy levels 82.7% versus the 73.8% and 80.4% posted by Grade A and Grade C office space respectively.
On a general note, Kenya’s status as a regional hub and entry of multinational corporations were listed as factors driving the real estate factor while Coronavirus, insufficient access to finance, oversupply in the sector, delay in the processing of construction permits and insufficient infrastructure were cited as factors that held the sector back in the period under review.
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