Between the National Museums of Kenya and Westlands, there are roughly eight (8) commercial office developments that are underway. That’s only along one street around Westlands area. There are more developments along Waiyaki Way, Kilimani and Upper Hill that are taking place. I have observed this given that my workplace is along Muthithi Road. So next time you are around these areas look around more keenly.
Mentor Management Limited (MML) has confirmed that there is, indeed, an increase in the total office space in Nairobi.
Commercial office spaces can either be sold as an entire block or they can be sold as parts of the whole building in what is known as fractional sales. MML highlights that the office market in Nairobi is “heavily biased towards fractional sales.”
Some commercial office developers prefer selling their development in fractions as opposed to selling the entire block. The motivation for this could be that it helps them finance the development. Some also use this approach to a pool of investors, tenants or occupiers who find it favourable.
MML places a caution on this approach.
“At a time of burgeoning supply, it moves the risk of not finding tenants on to these investors. It also sets up long term issues around building maintenance.”
There are also issues regarding management and disputes that come up as a result of fractional ownership of office space. MML says that these challenges are likely to the loss of functionality in such office buildings in comparison to buildings that have one occupier or owner.
Supply of Office in Nairobi
Also note that office spaces are measured in square feet (sq. ft). In 2014, approximately 1.8 million square feet of office space was added. This year, it is estimated that an additional 2.8 million square feet will be built in Nairobi. Next year, it is estimated that 3.1 million square feet will be built.
Grade A Offices
Grade A office is the highest quality of office. In Nairobi, there is an undersupply of Grade A office space. This is despite this grade of offices attracting the highest rents in the city due to high specifications. There is a considerable expansion in the supply of Grade A office. MML notes that more than half of Grade A offices that have either opened or scheduled to open this year are located along Waiyaki Way, Upper Hill and Kilimani areas of Nairobi.
MML lays emphasis on the quality of specification in commercial office development as the most important factor in successful office development.
In terms of location, Westlands and Kilimani areas have enjoyed a significant uptake of office space in 2014. Of the estimated total space built in 2014 in these two area, 82% was taken up in Westlands and 80% in Kilimani. On average, 1.5 million square feet of office has been taken up per year since 2012 and MML projects the same rate until 2016.
Have you ever driven to an office block parking and failed to secure a spot? If you intend to invest in office development, parking is a critical element. In Kenya, there should be at least 3 parking slots for every 1000 square feet of office space. International standards stipulate that there should be 4 parking spaces per 1000 square feet of office space.
MML studied 41 buildings that are to be developed in Nairobi over the next three (3) years and only 10 of these had met the requirement above. In fact, most had 2 parking slots for every 1000 square feet and only one office development had 4 parking slots.
According to MML’s CEO, James Hoddell: “For the highest quality of offices, with international levels of available parking, letting remains close to immediate.”
Approvals & Office Rents
If you thought offices developments will stall any time soon, then you are wrong. MML projects that there will be 184% more offices approved by the end of this year than there were last year, 2014.
In terms of rent, Gigiri area is enjoying the highest asking rent for offices at Kshs 150 per square foot. Generally, office rents in Nairobi are 6% higher this year than last year.
Most tenants or occupiers of office are mostly multinational corporations (MNCs) and local corporates who are expanding and relocating into international standard accommodation.
Prices in the Fractional Office Sales
Kshs 13,702 : The average sales price per sq. ft in Nairobi
Kshs 14,250 : The highest sales price per sq. ft in Nairobi’s Waiyaki Way
Kshs 1.396 Million : The average sales price per parking bay in Nairobi
Kshs 2.50 Million: The highest sales price per parking bay in Nairobi (The Mirage and Park Suites office developments)
Kshs 1.00 Million: The lowest asking price per parking bay in Nairobi