Prime office developers kept their asking rents flat, even as occupancy rates increased, making investors in commercial space miss out on the double-digit returns being witnessed by their peers in other segments of real estate.
This is after players in the office space category battled to attract new tenants and reduce the volume of idle space in an oversupplied market.
A new report on Kenya’s property sector by Knight Frank shows that the prime asking rent for Grade A offices remained unchanged at $1.20 (Sh192) per square foot, attributed by the firm to tough economic conditions.
This upper price level is expected to prevail this year, even as developers cut back on new projects due to the oversupply and rising cost of capital, especially for those utilising dollar loans whose cost has been affected by a weakening shilling.
“Historically, office take-up was slow due to economic challenges exacerbated by oversupply. However, this situation is gradually changing, with prime office monthly rent in Nairobi remaining stable at $1.20 per square foot and office occupancy rates increasing from 71.5 percent in the first half of 2023 to 76.5 percent in the second half of 2023,” said Knight Frank.
“This was largely attributed to the absorption of space in recently completed A-grade developments even as B-grade office developments continued to face challenges.”
Kenya saw a steady increase in the supply of Grade A office space from 2010 as the country established itself as a regional hub for international investors, governments, diplomatic missions, and multinational corporations.
This led to the rapid expansion of the commercial hubs of Upper Hill and Westlands, which attracted businesses away from the Nairobi central business district (CBD) where accessibility and supply of Grade A offices were limited. – Business Daily
