Gigiri and Karen were the best performing commercial office nodes in the Nairobi metropolitan area according to the latest report by Investment firm Cytonn.
The two areas recorded rental yields of 8.5% and 7.8%, respectively against the overall commercial office sector average of 7.0% in 2020.
According to the report, the commercial office sector performance softened in 2020 recording a 0.5% points decline in average rental yields to 7.0% from 7.5% in 2019.
Occupancy rates declined by 2.6% points to 77.7% in 2020, from 80.3%, in 2019.
Asking rents and prices declined by 3.0% and 2.8% respectively to an average of Kshs 93 and Kshs 12,280 per SQFT in 2020 from per SQFT from Kshs 96 and Kshs 12,638 per SQFT, respectively in 2019.
The subdued performance was largely driven by increased supply with the introduction of 0.8 mn SQFT office space to the market resulting to reduced occupancies and hence an oversupply of 7.3 mn SQFT which has forced developers and landlords to reduce or maintain prices and rents in order to remain competitive and attract occupants to their office spaces.
The Covid -19 lockdown measures leading businesses to restructure their operations also led to lower demands for office space.
In 2020, Gigiri, Karen and Westlands were the best performers recording an average rental yield of 8.5%, 7.8%, and 7.8%, respectively, due to their superior locations leading to the possibility of charging premium rents and the availability of quality Grade A offices. Thika Road and Mombasa Road were the worst performing nodes recording rental yields of 5.8% and 4.8%, respectively, attributed to poor location as a result of traffic congestions, and lower quality office spaces, that are generally unattractive to many businesses.
The performance across the three offices grades, Grade A, B and C in 2020 softened with the average yields on the Grade A, Grade B and Grade C declining to 6.8%, 7.5% and 6.8% from 7.4%, 7.9% and 7.2%, in 2019, respectively. Grade B office spaces had the highest rental yields at 7.5% as tenants prefer them because of their cheaper rents as compared to grade A office while having decent technical services (not as good as those of grade A) and ample security.
In 2020, serviced offices recorded yields of 11.2%, 4.2% points higher than the un-serviced offices’ yield of 7.0%. This is attributed to the attractiveness of the office setup to small businesses, start-ups and freelancers due to; (i) flexibility of the leases, (ii) no set-up costs required, and, (iii) opportunities for collaboration with other individuals/businesses in a competitive working environment.
The table below summarizes metrics that have a possible impact on the commercial office sector, that is the commercial office space supply, performance, commercial office space demand, and concluding with the market opportunity/outlook in the sector;
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