Occupation of new office space has increased, boosting activity in Kenya’s commercial market. This is despite a rise in defaults rates in the mortgage market and low sales of new residential houses.
A market bulletin by Knight Frank, covering the second half of 2019, shows that absorption of high-end office space increased by 41% during the review period compared to the first half of 2019.
The report notes that a few large office space transactions were completed in the second half of 2019, boosting activity in the commercial property space. Several firms in this segment were also engaged in either expansions, mergers or acquisitions.
This trend of fewer but larger transactions is expected to continue in 2020 as Nairobi remains a major commercial hub and a favourite location for multinationals looking for regional headquarters.
The commercial property market’s recovery is expected to ride on Nairobi, which is considered the African Silicon Savannah. Kenya’s Capital City remains a favourable location for global tech investors and venture capitalists targeting early start-ups.
While office space business is picking up, the overall property market remains depressed. Available data indicates that the number of residential accounts in the mortgage market remains dismal. It increased marginally to 26,504 in 2018 from 26,187 in 2017.
According to the Central Bank of Kenya (CBK), the defaults on non-performing mortgages increased from KSh27.3 billion in 2017 to KSh38.1 billion in 2018.
This contributed to the increased number of distressed properties in the market in 2019 and affected residential values significantly as lenders intensified efforts to recover nonperforming loans through the sale of collateral.
The sale price of prime residential houses in Nairobi decreased at a slower rate of 4% in 2019, compared to 4.5% in 2018.
Despite this sub-sector suffering from an oversupply and remaining a buyers’ market, sale prices are also seen beginning to stabilize, says the Knight Frank market update.
Over the second half of 2019, buyers were keen on closing deals before the end of the year.
RESIDENTIAL PROPERTY SEGMENT
The value of high-end residential properties has been declining at varied rates since the second half of 2016. Residential rents for plum properties in Nairobi fell by 2.8% in 2019, compared to 1.3% in 2018.
The decline has been mainly attributed to the oversupply of residential developments in certain locations such as Karen, whilst fewer expatriates are relocating to Kenya.
High-end residential rents and values are expected to improve this year, due to the repeal of the interest rate cap, which is anticipated to increase liquidity in the market.
In the second half of 2019, prime office rents remained unchanged at KSh131.77 ($ 1.3/sq. ft per month).
Selected office developments in the Pipeline
Some of the selected office developments in the pipeline include the 165,000 sq feet Merchant Square in Riverside, to be completed in 2020, Global Trade Centre Westlands with 678,000 sq feet to be completed in 2021, Sandalwood Riverside’s 250,000 square feet to be ready this year and Curzon Properties Westlands, with 146,715 sq feet of office space, to be ready for occupation next year..
Others include the Pink Pearl Limited Westlands developing office space measuring 126,109 sq feet,
Delta Chambers Westlands with 132,979 sq feet of office space, Riverside Square Riverside, Upperhill Chambers and Majani House, located within Nairobi’s Central Business District with 54,551 sq feet of office space, to be ready for occupation this year.