Commercial Projects
Nairobi Office Owners Grapple with High Vacancy Rates
The rising supply of new offices is giving tenants an upper hand in lease negotiations.
Office owners in Nairobi are grappling with challenges in retaining or attracting tenants, amidst a surge in new office spaces that threatens the city’s real estate appeal.
According to Cytonn, builders have recently capitalised on office developments – pushing up the total office space to 9.0 million square feet against a demand of 3.8 million square feet.
“We expect the oversupply to increase by 7.6 per cent to 5.6 million square feet in 2019,” Cytonn says in the Nairobi Metropolitan Area Commercial Office Report.
The rising supply of new offices is giving tenants an upper hand in lease negotiations, forcing landlords to slash or maintain rents to become more competitive and attract occupants.
Cytonn’s manager for regional markets Johnson Denge says the company has a negative outlook for the commercial office market in Nairobi, and that “investment in the sector should be geared to the long-term horizon for gains when the market picks up.”
The report has listed the CBD, Mombasa Road, and Thika Road as bottoming markets experiencing stagnant demand, high office vacancies, and very low pricing.
RELATED: Grade-A Offices, Malls Rents Fall 16.9% on Supply Jump
It has identified Upperhill, Parklands, Westlands, and Kilimani as falling markets characterised by heavy supply coupled with low demand and pricing to attract new tenants.
The dwindling fortune of the Mombasa Road and Thika Road markets is largely been blamed on the lack of quality offices and the perennial traffic jams that have made the zones quite unattractive to companies.
The two markets recorded rental yields of 5.8pc and 6.7pc respectively last year.
On the other hand, Gigiri and Karen have ranked the best-performing markets in the period – posting rental yields of 10.5pc, 9.2pc, and 9.0pc on increased demand from companies due to the availability of high-quality spaces and relatively good infrastructure network.
Cytonn has recommended investments in low supply-high returns areas such as Gigiri as well as innovative concepts such as serviced offices that posted rental yields of up to 13.5pc to boost returns.
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