Rent for office space is expected to decline to US$ 8.7 per square metre( KSh 939.60) in 2021 as retail rates fall to US$ 14.6 per square metre(KSh 1576.80).
This is compared to Office space rentals of US$ 8.8 per square metre in 2020 and US$ 9.5 per square metre in 2019, while retail rental rates declined from US$ 16.6 per square metre in 2019 to US$ 14.8 per square metre in 2020.
These figures are contained in a report Deloitte has released on the Economic Impact of the COVID-19 pandemic on East African economies (Kenya, Ethiopia, Tanzania, Uganda, and Rwanda) Volume 2 publication themed ‘Navigating New Realities.
According to the report, Kenya’s office sub-sector was affected mainly by the COVID-19 pandemic, albeit the year-on-year past shrinkage in the sub-sector.
Slowing demand and high supply levels saw rental yields decline from 7.8% to 7.3% first and fourth quarters of last year.
A move by firms to move to working from home models and cutting down operations due to CIVID-19 pandemic health protocols has slowed down demand, enabling tenants to negotiate for lower rental agreements. Rental yields averaged 7.1% in 2020.
According to Deloitte, Kenya’s real estate sector growth has been turbulent over the past five years, ranging from a high of 12.2% growth in 2016 to a low of 5.6% growth in 2018.
This sector posted a growth of 8.3% in 2019 and is estimated to have had a paltry 1.0% growth rate in 2020 due to oversupply and muted demand conditions.
When publishing Vol. 1 of the Deloitte report, a study conducted by the Kenya National Bureau of Statistics in Q2 2020 revealed that 30.5% of Kenyans who rented houses defaulted on their payments.
Last year also saw a slowdown in collections for off-plan real estate purchases while public offices shutdown affected building approvals.
Rent for retail space hit by COVID-19 pandemic effects
The retail sub-sector saw a slowdown in occupancy rates as retailers took off to escape the effects of the pandemic.
Deloitte says an oversupply of retail space, constrained spending power among consumers resulting from a decrease in disposable incomes, and a growing trend towards online shopping will consequently force property owners to give discount rates and other incentives to attract new tenants or keep the existing ones in 2021.
As such, retail rental rates are expected to decline to US$ 14.6 per square metre in 2021.
The industrial sub-sector experienced a stagnation of rental yields in 2020 as a limited supply of prime stock was met by a lack of development activity in the industrial market.
The Deloitte report says infrastructure development and the integration of new industrial economic zones are expected to spur industrial space demand between 2021- 2024.
Consequently, industrial rental rates are expected to rise to US$ 3.7 per square metre in 2021.
Conclusion of Phase 2A of the Standard Gauge Railway project and the construction of an inland container depot in Naivasha is also expected to catalyse growth in the sub-sector between 2021-2024.
Commenting on the East Africa macro-economic environment, Deloitte East Africa Financial Advisory Leader Gladys Makumi said, “We expect the East African economic activity to pick up in 2021 with a 3% growth in comparison to 0.9% in 2020.
This growth is expected to come from growth in private consumption and domestic demand. However, the recurrence of lockdowns, slow vaccine roll-out across the region, restriction in movements, and budgetary pressures in some of the major economies will have a negative impact.”
Tewodros Sisay, Deloitte East Africa Financial Advisory Associate Director, said that economic recovery in East Africa would be driven by tourism, agriculture, and manufacturing sectors.
“Subsequently, it will also be driven by an uptick in investment activity in the private sector with long-term effects of foreign direct investment (FDI) diversification expected to take effect, notwithstanding the 9.6% reduction in FDI inflows into the East African region in 2020,” said Sisay.
ALSO READ: Nairobi’s Office Space Market on Slow Recovery; Report
