Tenants in Control as Nairobi Offices Drop Rents Under Pressure

Factors including the rise of work from home, Covid-19 lockdown restrictions and an oversupply of prime office space in commercial districts has left occupiers of prime offices in Nairobi firmly in the driver’s seat as rents come under pressure.

The insights were revealed in Knight Frank’s Africa Offices Dashboard for Q1 2020, a 28-city composite index which tracks office rental performance in some of Africa’s most prominent cities.

Monthly prime office rents in Kenya remained subdued at USD 12 (Ksh1,260) per square meter, the data shows.

“Having started positively the Nairobi office market performance once again has been 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,” noted Anthony Havelock, Head of Agency, Knight Frank Kenya.

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The report noted that occupier activity in Nairobi had been characterized by consolidation activity by both local and international businesses, many of whom took advantage of lower rents to upgrade their offices.

Havelock, however, voiced confidence that the ongoing vaccination exercises would spur the market.

“Positively as the global vaccination rate has increased and with some lockdown measures improving, we are seeing multinational occupiers looking to re-occupy their spaces and relook at their strategies which in turn is leading to increased market activity,” he observed.

Across Africa, the performance of office rents remained mixed. Financial services and technology sectors have been the most notable sectors driving up occupier demand, a trend mirrored around the world.

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

“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,” stated Tilda Mwai, Knight Frank researcher for Africa.

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