Traffic jams to drive businesses out of the Nairobi CBD

A large fraction of new office space expected in Nairobi’s central business district could remain unoccupied in the next couple of years as businesses migrate to the suburbs to avoid heavy congestion estimated to cost millions of shillings every day, a real estate market survey has found.

Mentor Management’s commercial office 2014 report says the Kenyan capital will have more office space in the next two years but traffic and poor quality of buildings could leave the developers with empty office space in the medium term, taking some heat off the booming real estate market.

Mentor Management chief executive James Hoddell said heavy traffic in areas with the highest concentration of new buildings will discourage potential tenants and push old ones out with devastating results for developers.

The report cites Nairobi’s Upper Hill and Mombasa Road as the most vulnerable locations to the expected dip in demand for office space due to the poor road network around them.

“These are potentially prime office areas but occupiers are being put off by heavy congestion,” said Mr Hoddell.

Ease of access is the main reason companies are moving out of areas such as Upper Hill to less congested locations such as Westlands and Gigiri.

KCB, Britam, UAP and Fusion Group top the list of firms that are putting up huge office blocks in Upper Hill, a location that is already home to the World Bank, Coca-Cola, CBA, Equity Bank and CIC Insurance.

The Kenya Urban Roads Authority has said that it expects road works in Upper Hill to be complete by May 22 following the release of funds.

Hospital Road, Elgon Road, Kilimanjaro Road, Bunyala Road, Mara Road and Upper Hill Road are the major roads in the locality that have remained closed for nearly two years for construction.

READ: Fusion Group in Sh1.25bn Upper Hill complex plan

Completion of the Southern bypass is also expected to bring relief to occupants of office blocks on Mombasa Road.

“The planned upgrade of Uhuru Highway, the completion of the Southern Bypass and resulting reduction in traffic congestion, promises to improve take-up levels on Mombasa Road in the next three to five years,” the report says.

The report names Ngong Road and Kilimani as areas whose fate is tied to how fast the government can expand local roads network.

The survey found that in 2014 and 2015 both Upper Hill and Ngong Road will account for around 50 per cent of all newly completed office blocks in Nairobi.

Upper Hill, Westlands and Waiyaki Way were expected to account for 70 per cent of Nairobi’s office space between 2009 and 2016.

The report uses data from 14 million square feet of existing office space and another 14 million square feet of planned office space to make projections.

The Mentor survey also found that the expected oversupply of office space could also arise from developers’ failure to meet the market’s demand for Grade A offices. These are offices with better finishing, ample parking and easy access.

The market is, however, getting large with regular supply of Grade B offices that are characterised by poor locations, less parking space and have been built by materials that do not meet international standards, said Mr Hoddell.

Property management firms say demand for Grade A office space is rising and rents are highest.

“Rising demand from multinational corporations is likely to exacerbate the deepening shortage for A-grade offices. Improved flight scheduling to Nairobi has also increased investment commitment that requires steady supply of quality space,” says an annual property report by Broll, a South Africa-based property management firm with offices in Nairobi.

Broll found that office rent in Nairobi’s prime locations stood at between $15 (Sh1,297) and $9 (Sh777) per square metre in 2013.

Brolls findings are not far from the Mentor survey which found that rents in some buildings in Westlands and Gigiri cost between $2 and $1.64 per square foot translating to per $22 and $17.6 per square metre.

Despite the poor road network Upper Hill has been adequately supplied by Grade A buildings.

“A steady stream of businesses have relocated to this area over the last few years making the area achieve occupancy levels of up to 95 per cent for Grade A office space,” says the report.

Thika Road and Gigiri areas are the biggest beneficiaries of the congestion in other areas.

The Thika Road has benefitted from the newly-built Super Highway while Gigiri continues to mine its proximity to embassies, missions and the United Nations complex.

New customers

The report found that the central business district has lost a number of corporations but its accessibility has attracted new customers to fill in the space.

“Despite corporations moving out, universities and other institutions, driven by lower rents and easy public transport access, are coming in and taking up space to cater to the working class pursuing further education,” says the report.