Nairobi CBD recorded an average rental yield of 8.7% in 2017, a 0.3% decline from 9.0% recorded in 2016, with the occupancies declining by 8.6% points from 92.7% in 2017 to 84.1% recorded in 2018.
According to research by Cytonn investments, the decline can be attributed to companies moving out of the Central Business District in search of better environments and better quality office spaces and parking space.
According to the research, the main risk factors for investors in the building include companies moving out of the CBD to better nodes such as Upperhill and Kilimani, due to lack of good quality offices in the CBD, and insufficient parking in the Nairobi CBD area.
In 2017, office rents in the Upper Hill area decrease by 3% on average from KSh. 102 to Ksh. 99 per square foot. Kilimani on the other hand saw a rent increase of 2.2% during the same year, rising from KSh. 99 to KSh. 101 per square foot.
Due to the ongoing oversupply of office space in the market, occupancy declined in most locations in 2017.
Occupancy declined in all of the eight locations included in the research, from 2016 levels. On average, occupancy declined by up to 5% across the market with Mombasa Road experiencing the sharpest decline in office occupancy during the period. Occupancy along Mombasa Road decreased from 86.1% in 2016 to 74.2% in 2017, a decline of 11.9%.
Offices along Thika Road also saw a relatively high decline in occupancy, dropping from 8.3% to 73.6% while Parklands was the only location that recorded an increase in occupancy by 5.7% in 2017 according to the report.
Despite the falling rents and occupancy rates for a majority of office space, the price per square foot of buying commercial office space increased in most locations in Nairobi, including the CBD. The exceptions were Thika Road, Mombasa Road and Karen.
On average, it cost KSh. 626 more to buy a square foot of office space in the city in 2017 when compared to 2017.
