Landlords In Gigiri And Westlands Cashing In More Than Any Other Part Of Nairobi

Nairobi Metropolitan Area (NMA) Commercial Office Submarket Performance 2021

The Commercial Office sector realized an improvement in its overall performance in 2021, with the average rental yields coming in at 7.1 percent, 0.1  percentage points higher than the 7.0 percent recorded in 2020.

The average occupancy rates increased as well by 0.2 percentage points to 77.9 percent from 77.7 percent recorded in 2020.

The improved performance was largely driven by:

i) Relaxation of COVID-19 restrictions,

ii) positive demographics

iii) Nairobi’s recognition as a regional hub hence attracting foreign investments.

Gigiri and Westlands were the best performing nodes with average rental yields of 8.6% and 8.1%, respectively, compared to the market average of 7.1 percent, in 2021.

This was mainly attributed to the presence of high quality offices attracting high rents. On the other hand, Mombasa Road was the worst-performing node with average rental yields of 5.1 percent in 2021, 2.0 percentage points lower than the market average of 7.1 percent.

This was mainly driven by:

i) The low average rents at 73.0 per SQFT compared to the market average of 93 per SQFT

ii) Zoning regulations as Mombasa Road is mainly considered an industrial area thus making it unattractive to business firms

iii) Current traffic snarl-ups are caused by the ongoing Nairobi Expressway project thus making the area unattractive. However, this is a temporary situation as we expect the area to record improved performance upon the completion of the project.

NMA Serviced Office and Grade Performances

In terms of performance per grade, grade A and B office spaces had the highest rental yields at 7.5 percent as tenants prefer them because of their relatively better technical services in comparison to Grade C office spaces.

Grade C offices recorded the largest drop in the average rental rates by 3.3% which in turn led to the largest drop in rental yields by 0.2 percent points in the period of focus.

Serviced offices realized a 0.8 percent Y/Y rental growth to 183 shillings per SQFT in 2021, from Kshs 161 per SQFT recorded in 2020.

In comparison to the unserviced offices which recorded average rents of Kshs 93, the average rents for the serviced offices were higher by 49.2 percent in 2021.

The remarkable performance was mainly attributed to:

i) Convenience resulting from access to existing facilities

ii) Flexibility of the leases

iii) No set-up costs required

Recommendation and Outlook