Cytonn Investments has released a report today showing the outlook of commercial offices as the demand for office space in Kenya continues to grow.
According to the report, commercial office sector has grown rapidly in the last five years in both size and returns with newly completed office space increasing from 1.6 million square feet in 2011 to 5.4 million square feet in 2015, a 27.5% annualized growth.
Cytonn Report indicate that occupancy levels remain high across all office nodes as well as classes averaging at between 89- 90%.
Grade B offices had the highest average occupancy of 90%, with the Central Business Department having the highest average occupancy percentage of over 95%.
In terms of rents, the report indicate that, grade ‘A’ offices have the highest rents averaging at 118 shillings per square foot. Gigiri has the highest grade ‘A’ rent at an average of 140 shillings per square foot, with the lowest being in Mombasa road at 81 shillings per square foot.
Gigiri and Mombasa road rental yields are 12% and 8.3%, respectively and the prices have also been on a rising streak across most markets though in some markets such as Mombasa road, prices dipped between 2013 and 2015.
Grade A offices also have the highest prices with a square foot of grade ‘A’ office space selling for 13,847 shillings, while a square foot of grade C office space sells for an average price 12,167 shillings.
In terms of yields, the report shows that grade A offices have the highest rental yields averaging at 10.4%, with grade B and C offices having yields of 9.4% and 8.4%, respectively.
The best performing office nodes are: Ø For grade A offices; Upperhill and Gigiri with yields of 11% and 12 %, respectively Ø For grade B offices; CBD and Kilimani with yields of 10.2% and 9.6 %, respectively.
Cytonn projects that 2.5 million square feet of offices will be an undersupply by 2017, assuming occupancy of current stock remains constant, as demand for office space by both local businesses and multinationals continue growing and generally, the market outlook for commercial office space remains positive.
Article by Juma Fred.