Demand to buy or lease state-of-the-art office spaces in very specific office nodes around the city is rising while the vast majority of ‘normal’ office settings remain unoccupied with buildings recording occupancies only on the first, second, and in lucky instances, third floors.
Property agents say the development--which is a welcome relief following a slump witnessed in the last couple of years—is being fuelled by multinational corporations, non-governmental organisations, and government agencies looking to set up regional offices.
“Government and private sector are looking for more and newer office spaces,” said Gitonga Gikonyo of Axis Real Estate.
“There is demand for good quality type A (and B) offices in the market. There is, however, a glut in low-quality type C office space.”
Areas witnessing a surge include Westlands, Upper Hill, and Parklands where rental yields are as high as 8.5 percent, average price per square foot ranges between Sh11,500 to Sh13,500 and average rent per square foot ranges between Sh75 to Sh120.
So what is fuelling this demand?
Property agents say that Nairobi being the regional hub is fuelling the development especially with regional markets opening up to new opportunities as local and global economic shocks settle down.
“Nairobi is an ideal location for anyone seeking to set up an office to serve East and Central Africa,” said Bill Ndung’u, a realtor with VSB Properties.
“After the economic shocks, the economic and political environment is settling down and firms are going back to business as usual.”
A report by Knight Frank and Cytonn noted that businesses have continued to reopen post Covid-19 shocks, which had disrupted global supply chains.
In addition, a peaceful political transition after the hotly contested Kenyan election has downed political risk leading to new and renewed leases and construction of new office spaces which had previously been put on hold.
The reports also note that Nairobi is a net urbanisation zone, meaning continued demand for space for economic activities.
This is as serviced office and co-working spaces and buildings that are ‘green’ and climate change sensitive continue to gain traction from both tenants and investors alike as such spaces offer convenience and flexibility in leasing arrangements.
Investors flock in
The surge in demand is drawing both investors looking for spaces to buy, build, or improve and rent out and tenants looking for ideal spaces to buy to pitch office tents or rent.
Just last week, two international organisations enlisted a number of local agents to source for such A-list facilities.
One Mauritius firm is also understood to be looking to build or improve a type A office unit with an initial groundbreaking budget of $1 million by March next year.
A number of such deals are also understood to be in the pipeline with lease agreements in the process of being signed pushing occupancy rates in some office blocks as high as 95 percent.
Class A and B offices come with top-of-the-line common spaces and amenities, including high-end finish-outs, on-site workout facilities, cafes or restaurants, large media centres or conference rooms, and many more modern facilities within or just about the office locations.
Class A only varies from class B office settings as class A offices are of 100,000 square feet and above while class B offices cover at least 50,000 square feet.
Type C offices are your run-off mill commonplace office settings with a lift and space to set up a working desk which tenants are increasingly shying away from as office work demands go through a metamorphosis where technology and quality of workspace are rated highly, especially amongst generation Z.
Property agents, however, caution that there are downsides to the positive news.
Nairobi has a general office oversupply leading to many vacancies and suppressed rental yields in aggregate terms.
Working from home hybrid model has seen companies shrink office spaces at its peak during the Covid-19 pandemic and a generally poorly performing global and local economy means less cash to flow compared to yesteryears.
Other downsides noted include proposed tax regime changes on building materials that are also bound to increase the cost of building materials although that is still subject to parliamentary and public approval in the coming weeks.
“So far the market is quite upbeat and it is up to the developers to match that specific demand for type A and B office space,” said Phelix Ngaji, a realtor with Royal Target Homes & Properties.
“Anything outside that office class is still in the doldrums.”
