The commercial real estate sub-sector in Kenya has been experiencing exponential growth for years now. Even one who is not interested in the sector can attest to the fact that high-rise buildings have come up quite commendably in Nairobi and its suburbs. Commercial real estate refers to property leased for business purposes as opposed to that used for living or industrial purposes. Overall, the two leading areas within commercial real estate are:
- Commercial Office Real Estate – office spaces and parks
- Retail Real Estate – malls, restaurants, convenience stores, distribution centres etc.
Nairobi is at the centre of the commercial office real estate market. According to Mentor Management’s 2014 survey the most active areas are:
- Upper Hill
- Waiyaki Way
- Kilimani Area
- Nairobi CBD
- Mombasa Road
New areas are emerging especially along the Thika Superhighway and Gigiri areas. The office markets in each of these areas have different market characteristics that are influenced by the following:
- Vacancy Rates –This is the percentage of office space that is not occupied and is available for rental purposes. It shows how healthy the real estate market is. Vacancy rates affect the revenue flows, insurance cover taken for the office space and financing the loans. The more space taken up in a commercial office space, the lower the vacancy rate hence the property can be said to be doing well.
- Office Grades – Offices are usually grouped into classes. The most common classes are A, B and C. Usually commercial office spaces are graded relative to each other. In Nairobi, according to Mentor Management, the Class A office buildings are experiencing rising rental incomes, while those in class B were experiencing “static rents”. At the same time, Class A offices had about 95% occupation rates.
- Demand and Supply – The demand and supply for space for use by offices in Nairobi grew steadily between 2009 and 2011 [Mentor Management]. The trend has been affected by Kenya’s economic and political climate, technological advancements and global and high growth companies and industries flocking the Kenyan market. New work cultures are also affecting the spaces allocated to employees, such as use of office on a need-basis. Nairobi’s Upper Hill is currently experiencing rapid construction of office space , especially in Class A. The forecast implications include oversupply of class A space in Upper Hill and growth in competition for tenants.
- Proximity to transport nodes – Nairobi’s road network is undergoing major upgrades. However, roads that service the main office space areas have challenges associated with them. Offices situated along Mombasa Road are deemed to be less attractive due to the traffic jams. This may lead to higher vacancy rates. In Upper Hill area, some roads are undergoing renovations. Mentor Management estimates that “an additional 2.28 million square feet” of office space will be added to Upper Hill’s current office space.
- Availability of car parking space – Car parking space availability, accessibility and sufficiency is critical to the success of a commercial office space. In Nairobi, car parking is available in different forms. Some offices have open air parking spaces, while others have it integrated in either basements or suspended floors. Offices such as NHIF and NSSF have structural parking silos.Vehicle traffic patterns also impact on the attractiveness of a commercial office space. Office premises situated in areas characterized by either poor road networks and chronic traffic jams hardly attract tenants and high rental income.
- Regulations – Zoning regulations have over time freed up land that was designated for residential purposes. The Nairobi City County and the now defunct Nairobi City Council, have opened up areas such as Upper Hill, Parklands and now Gigiri is the new frontier in commercial office development.
At the moment, there is a shortage of space mostly along Waiyaki Way and Westlands. All the same, Mentor Management predicts an oversupply of office space by 2016 in these growth hubs.