Space glut to hit city office developers says, Cytonn

Monday February 1 2016

Cytonn Managing Partner and chief executive Edwin Dande (left) and real estate services manager Johnson Denge during real estate Nairobi commercial report launch at the Serena Hotel on February 1, 2016. DIANA NGILA (NAIROBI) 

Commercial office space in Nairobi could be headed for a glut as a build up of supply in 2015 rushes to catch up with city office developers, investment firm Cytonn has said.

Cytonn Investment Management in its Nairobi commercial office market report released Monday said 5.4 million square feet of office space was completed in 2015 compared to 3.4 million square feet in 2014.

The firm’s real estate services manager Johnson Denge said that the demand could however rise in 2017 if the economy grows faster.

“Generally, the market outlook for commercial office space will be improve if the economy continues to grow. Nairobi is becoming an investment hub and all the multinationals, SMEs and professionals will need office space hence we foresee a 2.5 million square feet of office undersupply by 2017, assuming occupancy of current stock remains constant.” Mr Denge said.

According to the report the average growth rate in prices for office space declined from the 18 per cent from 2011- 2013, to a moderate of 3 per cent between 2013 and 2015.

Yields went down

Yields also went down from 10 per cent to 9.3 per cent while occupancy fell by 1 per cent to stand at 89 per as at the end of 2015.rospects remain good

Cytonn Managing Partner and chief executive Edwin Dande said the market prospects remain good because the sector has remained the most lucrative over time.

“Real estate is still the most lucrative investment with more than double returns compared to traditional investments like T-bills and equities. We are seeing an increased market presence of brands in Kenya and due to improving infrastructure, more are expected to come crating market for the commercial office investor,” Mr Dande said.

The real estate firm remains positive for better prospects in 2017 when even more office buildings are expected to be completed while uptake is expected to surpass available spaces.

The rate of sales uptake of new buildings also went lower at an average of 75 per cent compared to rental occupancy averaging 89 per cent per cent for the whole market; indicating that the market is skewed towards renting as opposed to buying.

Cytonn specialises in independent investment and management, real estate development solutions, financial services, education and technology. The firm recently opened diaspora office in the US to connect the diaspora to East Africa.