Nairobi’s office market has suffered from the mismatch of supply and demand, says JLL Nairobi Report for 2017. According to the report, developers have failed to match supply to demand supplying high-end offices where the demand in the market was thinner than supply. I the report, the city’s office space inventory stands at 722,000sqm at a vacancy rate of 25% and rental rates of USD130-170/sqm per annum.
In 2017, office stock increased by 152,000sqm, resulting in an oversupply and increased vacancy rates. This despite the fact that a number of commissioned projects in the pipeline are expected to offload more space into the market. Still, investor confidence remains firm even as the market anticipates another 234,410sqm of office space by 2020, representing a 30.4% increase in three years.
Some key projects in the pipeline include; Kings Prism Towers with a capacity of 25,800sqm, the Pinnacle (70,000sqm) and Sanlam Towers with 15,000sqm.
In 2017, tenants ruled the market, dictating demand and supply which saw a rise in vacancy. As a result, rental rates and asking prices dropped even for some new buildings. On average, the rental rate increased marginally by 3.6 per cent year-on-year.
Older buildings have suffered the most from yield decreases, leading to efforts by old owners to retain tenants on the lease. Owners of old buildings will also expect to be affected by the fact that most demand is shifting to buildings with more modern features. That is where rental growth is expected as such demand for such buildings grow.
In retail, a weak consumer position in Kenya has dragged the performance of the retail sector over the past year resulting in weaker demand for retail accommodation. Nakumatt’s financial woes, which have led to its closure in many locations, have not helped the situation with its competitors striving to fill up the vacated space while new malls have been left struggling to find new occupiers.
However, demand is expected to improve as foreign players from Botswana and South Africa including Shoprite, Game and Choppies become more aggressive in the market. French Carrefour has also made significant inroads into the local scene. In addition, Tuskys intention to expand its clothing retail business could act as boost for demand.
In 2017, a total of 190,000sqm of new retail space were added to the market, the major ones being Crystal Rivers Mall (19,000sqm), Village Market Phase 2 (21,000sqm) and Southfield Mall (13,657sqm). In the pipeline is the Sarit Centre expansion due for completion in 2019 and the Waterfront Karen. In general, rental prices remained unchanged in the retail sector at USD380-450/sqm per annum.