Commercial office markets retain a positive outlook in the midst of a supply glut, says the latest Nairobi City Report by real estate firm JLL. Developer activity remains steady despite an over-supply in the markets and recent market corrections that have cut down rental growth.
This stems from the belief that as the economy improves, office demand is expected to improve. Kenya recorded a 6.3% growth in GDP in the last quarter of 2018 bringing the year’s average to 5.7%, and GDP growth in 2019 is expected to reach 5.8%.
This suggests that 2019 may bring only marginal improvement in office demand and rental growth however market optimists are betting on the long-term; a three to five-year horizon.
With developers confident, over 230,000m2 of accommodation is anticipated to be completed by 2022, in addition to the developments that were launched in of Q4 2018. Major recent completions include Kings Prism Tower 25,800m² and Sanlam Tower 15,000m².
But activity has not been limited to the private sector, the Federation of Kenya Employers will construct a US$ 6.2 million office development which will be funded from their cash reserves. This even as CBK pension towers nears topping out. This joint positive outlook of both the public and private sector could further stimulate confidence in other sectors of the economy.
According to the report, demand is forecast to be driven by largely by the ICT sub-sectors which have seen strong activity in 2018, mitigating a weaker performance in the financial sector. The agricultural sector and the tourism industry have also shown remarkable potential for contributing more to economic growth.
Overall demand is expected to show a gradual improvement in the year ahead. Furthermore, the government has already started implementing its expansionary fiscal policy which will stimulate broad-based economic growth.
Last year, strategic decisions by a few multinationals to downsize operations including Coca-Cola joining Eveready Kenya and Cadbury, and Nestlé’s downscaling of its workforce in 2017 resulted in some vacancy growth.
However, interest in Kenya continues to grow, driven by local and regional players keeping demand on steady. Some major pipeline projects include The Pinnacle (70,000m²) and One Africa Place (12,800m²) which is almost done.
The JLL report says that the city’s commercial office markets currently hold an inventory of 772,000m2 with rents ranging between US$130-170/m²/annum and a 25% vacancy rate.