Gigiri, Karen and Westlands were the best performing nodes in 2018 recording rental yields of 10.5, 9.2, and 9.0 percent attributed to increased demand by businesses and multinational companies due to their proximity to the CBD.
According to Cytonn Investment’s weekly report dubbed ‘Nairobi Metropolitan Area Commercial Office Report 2019’, other business nodes, high-quality office space and relatively good infrastructure network also contributed to good performance in the three areas.
Thika Road and Mombasa Road were the worst performing nodes recording rental yields of 6.7 percent and 5.8 percent respectively due to the lack of quality offices and the prevalence of traffic snarl-ups that have made them generally unattractive to firms.
In overall Nairobi Metropolitan Area Commercial Office market recorded a 0.2 percent points increase in rental yields to 8.1 percent in 2018, from 7.9 percent in 2017 driven by an improved macroeconomic environment and the positioning of Nairobi Metropolitan Area as a regional hub.
According to, the total office stock in Nairobi increased by 10.4 percent to 35.5 mn SQFT in 2018, from 31.5 mn SQFT in 2017, driven by completion of office complexes.
Office space supply has grown at a 23.6 percent CAGR between 2012 and 2018, driven by demand from growing SMEs and multinationals setting up operations in the country is the regional hub for East Africa.
Asking rents increased marginally by 1.6 percent to an average of 103 shillings per SQFT, from 101 shillings per SQFT in 2017, while asking prices increased by 0.6 percent to 12,719 shillings in 2018, from 12,649 shillings in 2017.
The slow rise in rents and prices is attributed to the oversupply of 5.2 mn SQFT office space as at 2018, which has created a bargaining chip for firms forcing developers to reduce or maintain prices and rents in order to remain competitive and attract occupants to their office spaces.
In terms of supply, Grade B offices were the most common, accounting for 58.1 percent of commercial offices in the Nairobi Metropolitan Area. The market witnessed an increase in Grade A office supply with offices such as FCB Mihrab (298,000 SQFT) and Prism towers (482,000 SQFT) coming into the market increasing the market share of Grade A offices from 24.0 percent to 25.0 percent of Cytonn’s sample size.
Gigiri had the highest percentage of its offices being Grade A at 66.7 percent. Nairobi CBD has the highest percentage of its offices being Grade B at 84.6 percent and no Grade A office space, while Mombasa Road has the highest percentage of its offices being Grade C at 50 percent.
With regard to performance, Grade B office spaces had the highest rental yields at 8.4 percent driven by 0.8 percent and 3.0 percent points increase in occupancy and rental rates, respectively.
Rental yields for Grades B and C increased by 0.5 percent and 0.9 percent points to average at 8.4 percent and 7.9 percent.
Grade A office yields however declined by 0.3 percent points from 8.4 percent to 8.1 percent due to a decline in occupancy rates, with new completions recording lower occupancy rates, and as they charge high rental rates, 12.5 percent above the market thus tenants opt for Grade B offices.