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Uptake of top grade office space increasing

More companies are moving from Grade B to Grade A offices because of advantages such as more parking, bigger and more luxurious offices

Milliam Murigi  and Wahinya Henry

Absorption of Grade A and B office space in Nairobi continues to rise despite decline in prime asking rents for offices.

An oversupply of offices has seen asking prices ease to Sh131 from Sh141 per square metre, a new report has revealed.   Absorption of the said offices rose by 12 per cent in the first half of the year compared to the second half of 2017, according to Knight Frank’s Kenya Market Update – 1st Half 2018.

Grade A are high-quality office spaces, usually newly-constructed, highrise buildings outfitted with top-of-the-line fixtures, amenities, and system  in high-visibility locations. Class B properties are considered average; they are generally nice buildings with fully functional facilities but lacking the same high-quality fixtures, architectural details, and luxury lobbies as Class A offices.

Increased uptake of office space followed the improved political climate and economic recovery in the period, with the country’s Gross Domestic Product (GDP) having expanded by 5.7 per cent in the first quarter. The decline in prime asking rents for offices also boosted the uptake.

More companies are now moving from Grade B to Grade A offices because of the added advantages such as more parking space, spacious and more luxurious offices. “Foreign investors are also opting for such offices, unlike before when most people were going for grade B offices,” said Ben Woodhams, Knight Frank Managing Director.

In retail, prime rents on average remained flat at Sh5, 548 ($55) per square metre per month, with footfall in major shopping malls having increased slightly in the review period as expanding retailers took up anchor tenant spaces vacated by ailing rivals — Uchumi and Nakumatt. 

Occupancy levels remained high for established malls at 90 per cent and between 60 and 75 per cent for new retail centres. The high occupancy levels indicate that there is still good demand for retail space in the right locations.

“The second half of 2018 is expected to record an increase in prime asking rents mainly due to economic recovery and the take up of existing space specifically in prime buildings in the right locations,” Woodhams said.

However, Charles Macharia, Knight Frank Head of Research said the uptake of such offices is mainly by international firms, organisations and companies, with Kenyans taking up less than 25 per cent of the spaces. 

“Most Kenyans prefer to invest in serviced offices because this is an affordable solution for local businesses. With this model, one doesn’t need to worry because you don’t need to be there physically since the spaces also offer virtual offices,” said Macharia.

One benefit to the tenant of this model is the all-inclusive rent, which eliminates concerns about unforeseen costs such as dilapidations or high service charge fees. Another is the ability to expand and contract office size according to workloads, taking on more space when business improves but releasing surplus space at the end of a project.

“Virtual offices which are aimed at start-ups or any other group who benefit from an official address, phone number and meeting rooms when interacting with clients are also becoming increasingly popular,” added Macharia

As a result, commercial business premises have become a hot cake in the property market in Nairobi and leading urban towns.  The allure of ultra-modern offices in upmarket business addresses such as Nairobi’s Upper-hill, Westlands, Kilimani, Ngong Road, Mombasa Road and some locations in the ever busy central business district has remained attractive to many businesses says a report by Villa Care.

Over the last 20 years, in Nairobi, office rents in the Westlands commercial district has grown the fastest, having climbed by nearly two-and-a-half times the 1998 levels, according to data compiled by Knight Frank Kenya.

Office rents in Westlands averaged Sh35 in 1998 but currently average Sh120 per square foot per month, a 242 per cent increase. In comparison, average office rents in Upper Hill have risen by 175 per cent over the two decades, from Sh40 in 1998 to about Sh110 per square foot per month in 2018.

Increased growth and commercial might has also seen an increasing trend where businesses are not only buying, but established brands are building own premises with state-of-the art facilities and Wi-Fi connectivity.

Kenya has been  facing an acute shortage of Grade A offices and high-end retail space despite perceived glut.  The  two segments rebounded early in the year  despite last year’s economic slump due to political jitters.

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