KenolKobil puts off plan to build Sh1.5 bn office block on oversupply


David Ohana, the KenolKobil chief executive. PHOTO | SALATON NJAU

KenolKobil has put on hold plans to build a Sh1.5 billion office block in Nairobi’s central business district.

The building was to serve as its new headquarters, besides generating rental income. The oil marketer has frozen the plan following what top management described as “cooling of the market” due to an “oversupply of office space”.

KenolKobil had earlier announced that it would begin construction of the 22-storey building on Haile Selassie Avenue in May.

“Upon consultation with the board of directors, it was decided that we should put construction on hold for now until market conditions improves,” David Ohana, KenolKobil’s chief executive told the Business Daily in an interview.

The planned building was to enable the company to move head office operations from the rented space at ICEA Building which it has occupied for over 30 years.

The oil marketer has leased the building from Jomo Kenyatta University of Agriculture and Technology.

KenolKobil’s employees were expected to occupy two or three floors of the building while the rest was to be leased out as part of the company’s efforts to shore up its non-fuel business.

KenolKobil planned to finance the project using its cash reserves. Mr Ohana had previously estimated that the building would take about two years to complete.

READ: KenolKobil eyes higher revenue with Sh1.5bn Nairobi office block

Property development firms are putting up offices in response to demand for high quality buildings by multinationals setting up base in Nairobi.

Upper Hill and Westlands are some of the satellite nodes which have witnessed increased real estate activity with Mombasa Road and Ngong Road also experiencing a significant upsurge in office blocks.

Mentor Management Ltd, a property development firm, two years ago predicted a glut of office space beginning this year with more than 2.8 million square feet vacant in upmarket Upper Hill and Westlands.

In January, Cytonn Investment Management affirmed this surplus outlook, but added that they expect office space demand to rise in 2017 if the economy grows faster.

“The market is currently flooded with office space and we therefore do not want to create a white elephant by having a building that is not sufficiently occupied. It is not possible to tell when the project will resume,” said Mr Ohana.

KenolKobil’s push to own its own head office is part of a raft of investments which highlight its shifting strategy away from downsizing, which it embraced on three years ago.

A 2012 loss forced the company into cost-cutting, sale of non-core assets and a freeze on new investments.

The NSE-listed firm recently earned Sh1.6 billion from the sale of its two subsidiaries in the Democratic Republic of Congo and Tanzania, boosting its earnings for the year ended December.

The company’s net profit in the period stood at Sh2.01 billion compared to Sh1.09 billion the year before, representing an 85 per cent rise.