Covid-19 casts a long shadow on the office sector
The commercial office space sector is in for a long, bumpy ride thanks to the coronavirus pandemic. A new survey by professionals in the build environment say demand for office space continues to fall with companies embracing remote work.
Harriet James @harriet86jim
Demand for office space will remain low through the remainder of 2020 and likely well beyond that due to health concerns from the coronavirus and the rapid rise in remote work, a trend that was already on the rise, but accelerated by the virus, a new report by the Architectural Association of Kenya (AAK) that looks at how the pandemic is likely to transform the office space industry in the long term.
The report predicts a surge in vacancies made worse by new office space coming online that in turn puts negative pressure on rents.
The commercial office sector recorded a 0.2 per cent and 0.3 per cent points decline in the first half of 2020 in average rental yields and occupancy rates down from 7.5 per cent and 80.3 per cent, respectively in the 2019 financial year.
The report dubbed, ‘What the Pandemic is teaching us about the Built Environment Sector – Buy Kenya Build Kenya’ for January to June 2020 released last week, attributed this decline to the measures taken by the government to reduce the spread of the coronavirus thereby leading to reduced demand for office spaces.
“Organisations put on hold expansion plans due to adapting work-at-home strategies, while others opted to scale down operations amidst declining revenues and high levels of uncertainty,” said AAK president Mugure Njendu.
The report highlights trends in the Real Estate Sector and this time round the research was undertaken in the middle of Covid -19 and a projection of a global recession in the aftermath of the global pandemic.
“We at Shelter Afrique are, especially interested in this report beyond its self-evident value to the sector as it provides intelligence on our biggest market.
The Kenyan market has the lion’s share of our portfolio; we have invested over Sh2 billion in the market in recent years,” said Andrew Chimphondah group managing director Shelter Afrique.
“Additionally, last year as part of our strategic goal of enhancing shareholder value and development impact, we launched the Centre of Excellence (COE), which is the arm of the organisation committed to advocacy, capacity-building and research.
We see immediate linkages between the purpose of the COE and the Status of the Built Environment report, and we look forward to synergising our efforts for the launch of the next report,” he added.
The report also noted that asking rents for office spaces also saw similar changes, with a decrease by up to 0.8 per cent to an average of Sh95 per square feet (sqft) in the first half of 2020, from Sh96 per sqft in a similar period in 2019.
The decrease in asking price by one per cent to Sh12,516 in the first half of 2020 from Sh12,638 in the same period in 2019 was also attributed to the existence of surplus office spaces that stood at 5.6 million sqft as at 2019.
The oversupply has forced developers to reduce or maintain prices and rents in order to remain competitive and attract occupants to their office spaces.
The best performing submarkets in the first quarter of 2020 included Westlands, Gigiri and Karen owing to their preferred locations and availability of top-quality offices, which translated to premium charges on rentals.
Thika Road and Mombasa Road recorded low rental yields and this is attributed to businesses avoiding the CBD due to traffic.
“Major road infrastructure do not necessarily lead to business and that’s why developers lose out,” notes Juliet Rita, AAK Towns Planner Chapter.
Juliet observes that various aspects of planning like access to buildings and parking space needs to be integrated with the development of major roads to ensure that office buildings in these areas are occupied.