Nairobi Office Builders Face Market Oversupply Risk

A leading development and project manager has revealed a looming oversupply in Upper Hill office space, followed by a risk of general oversupply across Nairobi by 2016.

In its February 2014 Commercial Office Market report, Mentor Management Limited said that Mombasa Road – one of Nairobi’s seven office ‘nodes’ – is currently oversupplied and suffering from high vacancy rates.

The other nodes are Kilimani/Karen, Upper Hill, CBD, Waiyaki Way, Westlands & Parklands, and Gigiri – with Thika Road being tipped to emerge as the city’s eighth office node.

The asking rents for Grade A offices along Mombasa Road are currently at Sh75 per sq ft and Grade B offices at Sh62 per sq ft.

“The lower demand on Mombasa Road is a direct consequence of traffic congestion, which has led to high vacancies and depressed rentals,” said James Hoddell, CEO of Mentor Management Ltd.

The firm, however, predicts that the opening of the Nairobi Southern bypass, which will link Mombasa Road to Kikuyu – offering a way around the city for through traffic – will in the next three to five years lead to improved take up for Mombasa Road offices.

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Mentor Management said that the other imminent source of commercial property oversupply is Upper Hill, where occupancy of Grade A offices has been exceptionally high at 95 percent.

With 2.3 million square feet of office space coming into Upper Hill over the next two years, the area will have some oversupply leading to fierce competition for tenants.

The report added that Waiyaki Way and Westlands are currently suffering from an acute shortage of office spaces with asking rents going for as much as Sh165 per sq ft.

“Based on current planning permissions and building under-way, these shortages are set to worsen during 2014 and 2015,” Mentor said.

The report further said that the single feature most likely to fill any office block in any of the nodes is the availability of car parking – with offices offering parking spaces emerging as a first choice for most commercial tenants.

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