Kenya being a regional business hub has attracted international and local investors, is one of the factors keeping the market running even in this COVID-19 pandemic. However, lack of enough finance, oversupply in the market, slow processing of construction permits and poor infrastructure are some of the factors affecting the sector during this period. But are these the same factors that are resulting in the different rate of commercial property uptake in different parts of Nairobi and its environs?
In a report by Cytonn investment show, Westlands, Gigiri and Karen showed the best returns for the commercial property while Mombasa Road and Thika Road performed the worst in the first three months of this year. Last year, Lavington was the best in office uptake followed by Kren and Gigiri. Lavington also showed an increase in grade A office prices as the demand of these offices rose by each day.
This year, a report shows that Gigiri is currently at the top having 80.4% of the office spaces occupied and investors in these commercial properties getting a rental yield of 9.2%. Karen was not left behind having occupancy of 85.5% of the commercial properties and a rental yield of 8.3% to the landlords. Westlands made its way to the top 3 with office occupy of 80.3% and a rental yield of 8.3%. For the 2 worst performers in the commercial property sector, Mombasa road had an occupancy rate of 66.5% and a rental yield of 5.5% while Thika Road had an occupancy level of 80.4 % and a rental yield of 6.3%.
In the same report by Cytonn, the research analyst at the company pointed out that the negative results of the commercial office sector are a result of the oversupply of this office space in the region and the coronavirus pandemic. Due to fear of contracting the disease and social distancing measure put by the government of Kenya, most companies are now working from home hence it is very hard for the occupancy and rental yield levels to increase.
However, there might be some hope in the sector as the delays in issuing construction permits will allow the vacant offices to suck up the current demand. This will increase the occupancy and rental yield levels for landlords. She also added that the good performance in Karen, Gigiri and Westlands may have been contributed by the spike in demand for commercial properties in those areas, due to their proximity to CBD, Grade A offices that allow them to charge high prices, good infrastructure network and the status of the locations.
Some other factors that could have led to the low uptake and rental yield in Thika road and Mombasa road are the inconveniences of the location due to traffic jam and availability of low-grade offices by a majority in these two locations. This is because of a recent study that shows grade A and B offices have the highest uptake compared to Grade c offices which recorded the lowest uptake rate. In our case, Grade A and B are available in the locations that showed the best uptake while Grade C offices are mostly located in the areas that showed low uptake levels.