Upperhill, Westlands, Kilimani and CBD are remaining to be the main office nodes in Nairobi.
Even with this, the CBD saw companies relocate in search of better quality office space, convenience, ease of access and more space according to the Cytonn weekly report.
Upperhill and the CBD are reported to have the highest supply of office space with market shares of 24.4 percent and 24.3 percent, respectively, with Thika Road having the lowest supply with a market share of the total office space of 0.8 percent.
The report further revealed that the best performing office submarkets in 2016 were Parklands and Karen with average rental yields of 10.0 percent and 9.7 percent, respectively due to prime locations enabling them to charge premium rents and attract quality tenants. The worst performing markets were Mombasa Road and Thika Road, constrained by poor locations, with Mombasa Road being affected by its zoning for industrial use and traffic congestion and Thika Road zoned for lower-mid income residential with low-quality office space.
In terms of grades/class, grade B offices have the highest supply with a 60.0 percent market share with grade A offices accounting for only 10.0 percent. There is a short supply of purely grade A office space in the market.
In terms of performance, grade A offices have the highest rents, which yield at an average 10.0 percent, while Grade B offices have the highest occupancy levels at 90.6 percent and Grade C are the worst performing with average rental yields of 8.6 percent.
The report noted that the market is currently oversupplied, constraining performance which is now a buyers’ market. To gain value, investors will have to seek specific pockets of value with regards to:
- Grade A Office Space – Invest in Grade A office space which is undersupplied in the Nairobi market,
- Low Supply Zones – Invest in low supply markets with proper access and relatively better access to lands such as Gigiri and Karen,
- Returns – Seek regions which despite the oversupply, still have attractive returns such as Parklands,
- Differentiation – Invest in differentiated concepts such as serviced offices, mixed use development, green building and smart offices
- Yielding Property – Investment in yielding property, with already locked in lease and best returns