Glut in office space hurts real estate returns

With this comes challenges of meeting financial obligations such as loan repayment given that most of these developments were funded by debt from commercial banks.

The new-found interest in commercial properties enticed commercial banks to fund such projects on the back of assured income from occupants.

Looming default

However, with the expected drop in occupancy, the possibility of default is growing by the day.

This is a complete reverse to the housing sector where demand far outstrips supply by almost a factor of five to one.

Currently, the national demand for houses is estimated at 150,000 units annually while the supply is said to be a paltry 30,000 units.

The high demand for houses has created innovative ways to meet the needs.

Commercial banks have entered the mortgage business window previously a preserve of Housing Finance and S&L, a subsidiary of KCB Bank. In addition, other developers have entered the real estate business whereby they are putting up houses and offering them for sale.

The government has also been building low-cost houses and extending mortgage facilities to low-income earners in the hope of boosting supply.

Property developers indicate that the frenzy to occupy more space has fizzled out and businesses are cutting space to check budgets, eroding demand further.

“Businesses are cutting down on space occupied as part of their cost reduction strategy due to the subdued business environment,” said Mr Reginald Okumu of Ark Consultants, a property development firm.