BY SILAS APOLLO
Westlands area in Nairobi remains the preferred destination for office spaces ahead of previously sought-after locations such as Upperhill, Kilimani and Mombasa road, as per the latest report on property by Knight Frank, which says that the area has become the most sought-after destination by most businesses over the last one year.
As Upperhill, Kilimani and even Mombasa Road, which have previously been the most desired destinations, continue to experience an exodus of businesses, office spaces in the destinations continue to remain empty.
The report for the second half of 2022, indicates that influx to Westlands could mostly be attributed to the fact that the area currently has the largest share of grade A commercial office space compared to other competing nodes.
Knight Frank argues that such office spaces, which have become the preference for ICT-oriented enterprises as well as non-governmental organisations (NGOs) and multinational corporations (MNCs) experienced increased demand in 2022.
The company says in the report that tenants have a predilection for office space with net lettable areas of between 3001 square feet and 4000 square feet over the last couple of months compared to other office sizes.
Coworking, the report adds, has gained traction over the years and is gradually gaining a foothold in Africa and especially in Kenya, with more developers currently putting more consideration into this kind of development.
“Kenya is gradually embracing this concept of shared workspaces. Nairobi Garage, a coworking space provider opened a 12,000 square feet outlet in the Central Business District – their fifth outlet. Nairobi Garage offers circa 100,000 square feet of office space,” the report says.
“Kofisi, another supplier of coworking office space, expanded its activities by opening a new branch at Riverside Drive, dubbed ‘Kofisi Square’ and with a circa 50, 000 square feet size,” it adds.
There is evidence that developers are mindful of new market trends, and the revelations by the report comes at a time when a number of real estate players have been in a race against time to attract back tenants into their office spaces following a period of slowed uptake for such properties and investments.
A spot check by the Nairobi Business Monthly magazine to areas such as Parklands road in Westlands, parts of Upperhil and on Mombasa road, showed that a number of office as well as retail spaces continue to remain unoccupied.
The situation, according to some experts, has been as a result of oversupply of such spaces in the market, especially in areas such as Upperhill, the coronavirus which accelerated remote working as well as increase in charges by most landlords amidst a depressed economy.
In Upperhill, for example, a number of office spaces in the new buildings have been sitting empty due oversupply. The situation has in the recent past forced some landlords to reduce their rents as well as ease lease terms to maintain and attract more tenants.
Knight Frank therefore argues that with ICT penetration increasing, coworking seems to have great untapped potential as it estimates that the coworking sector is less than 3% of the total available office stock. Co-working sector can bring economic prosperity because it has become effective for most companies and individuals.
“The concept is still in its nascent stage, but Kenyans seem to be accepting it favourably. Over the review period, major grade A spaces that entered the market were the 100,000 square feet ‘The Rock’ in Westlands, 136,167 square feet. ‘The Piano’ in Westlands, and 77,876 square feet. ‘The Cube’ in Riverside,” the report says.
The report however also cautions that the total amount of office space released in the market has decreased in 2022 and we expect a further decline in 2023. Similarly, over the review period, average monthly prime rents stabilised at $1.20 per square feet, similar to the first half of 2022. This is mainly attributed to the completion of A grade office developments and the continued uptake of quality stock.
“There has been increased preference from investors to have rent in dollar payments due to the ongoing depreciation of the Kenyan Shilling. Occupancy rates in grade A offices averages circa 74%, a marginal rise compared to 72.8% in H1, 2022,” the report says.
On retail space the report notes that over the review period, prime retail properties attracted a rent of $5.00 per square feet in a month. Prime retail destinations in the country are mostly characterised by malls whose occupancy rates in 2022 were over 90% for most established malls.
“As much as the location of retail properties is very critical, tenant placement strategies, of which investors often overlook leading to poor performance of such retail outlets, are indispensable – hence the need for mall owners to hire professional managers as early as during the design stages,” says the report.
The report further recognised that supermarket chains in Kenya have had contrasting fortunes with Naivas, Quickmart, Chandarana, and Carrefour continuing to expand while Uchumi, Tuskys, Nakumatt, Shoprite, Game Stores, and Choppies shutting down either through bankruptcy or exiting the market.
It also highlighted the need for different retail players to get creative to flourish especially now that business environment is tough, noting that some super market chains failed because of low penetration of modern retail in Kenya. This is backed by a report by Boston Consulting Group which notes that 77% of retail sales are made in traditional retailers commonly known as ‘duka’..