Riverside and Lavington in Nairobi’s upmarket registered the highest annual rental growth for grade A offices with a 1.9 per cent and 2.2 per cent respectively, the latest industry reports indicates.
However, the report casts doubt on the prospective growth in the sector as average rental rates remained low.
“This is largely attributed to surplus of office stock in the capital city,” says the report dubbed Kenya Office Market Snapshot half year One 2019 prepared by Broll property.
The report released last month indicates that Westlands, Kilimani, Parklands, Karen and Gigiri had the largest office space market share with 623,141 square meter translating to 36.5 per cent.
Upperhill was the second most sought after area for office space with 453,006 square metre translating to 26.5 per cent of total office stock.
Westlands had the largest market share of grade A space with 485,712 square meter translating to 77.9 per cent of office space in the urban activity.
This was followed by Kilimani and Upperhill with 115,837 square meter and 100,007 square meter respectively.
Grade A offices registered the highest yearly yield growth in occupancies of 17 per cent points to an average of 83 per cent in the first half of this year from 65 per cent in the same period last year.
Grade B offices registered an increase of 8 per cent points to 88 per cent from 80 per cent.
“The growth in tenancy is attributed to innovative occupational terms such as revenue share rent approach, progressive escalation rates instead of the usual fixed rates,” read part of the report.
The reporter further revealed that the impressive tenancy growth is as a result of acceptance of security deposits in form of bank guarantees as opposed to traditional cash deposits.
The office sales remained subdued as clients preferred the flexibility offered by leasing option.
However, selling prices ranged at between Sh1,000 and Sh1,500 per square meter.
As the sector hits the home stretch of the second half of the year, the report paints a positive picture with expected high foreign direct investments.
“The demand for high quality office stock, innovative products and growth of differentiated concepts such as serviced offices and mixed use developments are set to boost its performance,” concludes the report.