Nairobi Commercial Office Outlook Negative Due to Oversupply

The outlook for Nairobi Commercial Office remains negative with continued oversupply and decline in occupancy rates and yields, according to a report by Cytonn Real Estate.

According to the report, asking prices and rents have continued to decline as landlords endure giving discounts and concessions to attract and retain clients.  Asa result, the oversupply in the commercial office is expected to continue affecting the demand for office spaces.

“This is attributed to the reduced demand for commercial spaces brought about by the COVID-19 pandemic amid the tough economic environment as some firms downsize due to financial constraints while others embrace the working from home concept,” Cytonn Real Estate says in its Commercial Office Report 2020.

“We had an oversupply of 7.3 mn SQFT of office space in  2020, and it is expected to grow by 1.1 percent to 8.0 mn SQFT in  2021, due to reduced occupancy rates,” part of the report reads. In 2019, there was an oversupply of 6.3 mn SQFT of office space.

In terms of demand, the report projects a neutral outlook with investment opportunities being in differentiated concepts such as serviced offices offering yields of up to 11.2 percent compared to 7.0 cent average rental yields of unserviced materials.

“Investment opportunity exists in zones with low supply and high returns such as Gigiri and in differentiated concepts such as the serviced offices recording average rental yields of 11.2 percent, 4.2 percent higher than the market average of 7.0 percent.”

In 2020, serviced offices recorded yields of 11.2 percent, 4.2 percent points higher than the unserviced offices’ yield of 7.0 percent.

Westlands and Karen were the best performing nodes recording rental yields of 15.9 percent and 14.8 percent, compared to 7.6 percent and 7.8 percent for Unserviced offices respectively in the same areas.