Abundance dims office rental yields

Monday, April 27th, 2020 00:00 |
Amara Ridge luxury homes developed by Cytonn Real Estate in Karen, Nairobi. Photo/PD/File

Zachary Ochuodho @zachuodho

Uptake of office space increased slightly by 0.7 percentage point in 2019 due to the tough economic environment and oversupply of space, a report by Cytonn Investment Real Estate indicates.

According to the report, the average rental yields declined slightly from 8.3 per cent in 2018 to 7.7 per cent thereby creating room for potential tenants to bargain for lower rates.

Cytonn research analyst Wacu Mbugua said the outlook for the commercial office sector is negative mainly due to oversupply of office space and expected stagnation in performance in 2020 given the current Coronavirus pandemic.

Construction activity

Mbugua said since a majority of corporate staff are working from home, they are unlikely to look for office space.

“However, we expect a slowdown in construction activities allowing the existing demand to absorb the current supply,” said Mbugua.

Speaking yesterday while releasing the Nairobi Metropolitan Area (NMA) Commercial Office Report 2020, she said Gigiri, Karen and Westlands were the best performers in 2019 recording rental yields of 9.2 per cent, 8.3 per cent, and 8.3 per cent, respectively.

She said the good performance was attributed to increased demand by businesses and multinational companies due to the sites proximity to the central business district and other business nodes, relatively good infrastructure network, superior locations and availability of quality Grade A offices, enabling them to charge a premium on rentals.

According to the report, the investment opportunity within the Nairobi Metropolitan Area falls in areas with low supply and high returns such as Gigiri and in differentiated concepts such as mixed-use developments (MUDs) and serviced offices recording rental yields of up to 7.9 per cent and 12.3 per cent, respectively.

However, grade B office spaces recorded the highest rental yields at 7.9 per cent compared to Grade A and Grade C whose rental yields stood at 7.4 per cent and 7.2 per cent respectively. Grade B offices were the most common in the market with a market share of 52.1 per cent.

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