FOR IMMEDIATE RELEASE
GIGIRI WAS THE BEST-PERFORMING COMMERCIAL OFFICE NODE IN THE NAIROBI METROPOLITAN AREA, WITH AVERAGE RENTAL YIELDS OF 8.7, 1.1% POINTS HIGHER THAN THE MARKET AVERAGE OF 7.6%. WESTLANDS AND KAREN WERE THE SECOND-BEST-PERFORMING NODES, BOTH RECORDING AVERAGE RENTAL YIELDS OF 8.3%
Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Area Commercial Office Report-2022. The report analyses the performance of the commercial office sector in the Nairobi Metropolitan Area (NMA) through tracking the changes in occupancies, rental yields and rental rates. It also outlines the commercial office space demand, supply, opportunities and outlook of the sector.
- Nairobi Metropolitan Area (NMA) Commercial Office Submarket Performance 2022
The Commercial Office sector realized a 0.3% points increase in average rental yields in 2022 to 7.6%, from 7.3% recorded in 2021 attributable to increased occupancy and rental rates. Average asking rents per SQFT in the Nairobi Metropolitan Area (NMA) increased by 2.1% to Kshs 96 per SQFT from Kshs 94 per SQFT in 2021. Additionally, occupancy rates increased by 1.8% points to 79.4%, which is the highest recorded since the start of the COVID-19 pandemic in 2020, surpassing 77.6% achieved in 2021. The improved performance in the Commercial Office space sector can be attributed to several factors, including: i) slow but steady rise in demand for physical spaces as more firms resumed full operations, ii) increased supply of high-quality Grade A office spaces, such as Karen Green and Global Trade Centre (GTC) Office, which attract premium rents, iii) the adoption of expansion strategies by companies such as Call Centre International (CCI) Group boosting occupancy rates, and iv) a stabilizing and improved business environment following the resumption of economic activities after the COVID-19 period and the peaceful conclusion of the August 2022 general elections. The table below shows the Nairobi Metropolitan Area (NMA) sub-market performance;
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(All values in Kshs unless stated otherwise) |
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Cytonn Report: Nairobi Metropolitan Area Commercial Office Market Performance FY’2022 |
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Area |
Price/SQFT FY 2021 |
Rent/SQFT FY 2021 |
Occupancy FY 2021(%) |
Rental Yields FY 2021(%) |
Price Kshs/ SQFT FY 2022 |
Rent Kshs/ SQFT FY 2022 |
Occupancy FY 2022(%) |
Rental Yield FY 2022(%) |
∆ in Rent
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∆ in Occup ancy
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∆ in Rental Yields |
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Gigiri |
13,500 |
119 |
81.3% |
8.6% |
13,500 |
118 |
81.6% |
8.7% |
(0.8%) |
0.3% |
0.1% |
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Westlands |
11,972 |
104 |
75.5% |
8.1% |
12,032 |
108 |
76.4% |
8.3% |
3.8% |
0.9% |
0.2% |
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Karen |
13,325 |
106 |
83.0% |
7.7% |
13,431 |
111 |
82.9% |
8.3% |
4.7% |
(0.1%) |
0.6% |
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Kilimani |
12,364 |
91 |
79.8% |
7.1% |
12,260 |
92 |
84.1% |
7.7% |
1.1% |
4.3% |
0.6% |
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Upperhill |
11,336 |
91 |
80.1% |
7.6% |
11,662 |
91 |
81.5% |
7.7% |
0.0% |
1.4% |
0.1% |
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Parklands |
11,787 |
82 |
82.8% |
6.8% |
11,971 |
83 |
85.2% |
7.3% |
1.2% |
2.4% |
0.5% |
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Nairobi CBD |
12,409 |
94 |
78.0% |
7.0% |
12,586 |
96 |
76.5% |
7.1% |
2.1% |
(1.5%) |
0.1% |
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Thika Road |
12,571 |
79 |
76.3% |
5.7% |
12,571 |
79 |
80.1% |
6.0% |
0.0% |
3.8% |
0.3% |
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Mombasa Road |
11,250 |
73 |
64.2% |
5.1% |
11,325 |
71 |
66.9% |
5.1% |
(2.7%) |
2.7% |
0.0% |
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Average |
12,106 |
94 |
77.6% |
7.3% |
12,223 |
96 |
79.4% |
7.6% |
2.1% |
1.8% |
0.3% |
Source: Cytonn Research
- Gigiri was the best-performing node in FY’2022, realizing an average rental yield of 8.7%, 1.1% points above the market average of 7.6%. Westlands and Karen were the second-best performing nodes, both registering average rental yields of 8.3%. The main factors contributing to the high demand for premium office spaces and attractive investment opportunities in these areas include: i) significant concentration of top-quality office buildings commanding premium rental rates and yields, ii) the availability of sufficient infrastructure and amenities that enhance the value of investments, and iii) the presence of multinational corporations, international organizations, and embassies in these locations driving up demand for quality office spaces, and,
- Conversely, Mombasa Road was the least performing node in FY’2022 with an average rental yield of 5.1%, 2.5% points lower than the market average of 7.6% attributed to; i) the predominance of lower quality office buildings that command lower average rental rates at Kshs 73 per SQFT, ii) its reputation as an industrial zone, making it less appealing to office-based businesses, and, iii) stiff competition from other sub-markets.
- NMA Serviced Office and Grade Performances 2022
In terms of performance per grade;
- Grade B office spaces realized the highest rental yields at 7.8%. This was attributable to their increased preference by tenants evidenced by a 3.4% increase in occupancy rates, which was mainly as a result of their relatively affordable rental rates compared to Grade A offices and better technical services in comparison to Grade C office spaces,
- Grade A offices recorded the highest Year-on-Year (y/y) increase in rental rates by 5.1% in 2022 to Kshs 104 per SQFT from Kshs 99 per SQFT realized in 2021 attributed to their high quality spaces fetching higher rents, and increased demand by multinational firms and organizations, and,
- Grade C offices realized a slight increase in average rental yields by 0.1% points to 6.7% from 6.6%, attributable to a 1.2% increase in average rental rates to Kshs 83 per SQFT from Kshs 82 per SQFT recorded in 2021. However, the increase was countered by a 1.1% points decline in average occupancy rates which is attributable to reduced demand by tenants, opting for Grade B offices which offer high-quality office space with ample amenities such as parking.
In 2022, serviced offices realized a 2.0% Year-on-Year (y/y) growth in rental revenues, with average rental rates increasing to Kshs 190 per SQFT, from Kshs 183 per SQFT recorded in 2021. Notably, serviced offices in Westlands and Karen recorded the highest rent appreciations of 3.8% and 3.5%, respectively, significantly higher than the market average of 2.0%. The improvement in performance in these locations is due to; i) the presence of quality infrastructure enhancing accessibility, ii) higher demand for serviced offices supported by the presence of a high-end clientele and international firms with changing preferences, diversified themes and articulate designs which demand world-class standards, iii) high quality facilities attracting prime rents, and, iv) serene office locations which appeal to clients moving away from the city hustle.
- Recommendation and Outlook
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE; highlights sectorial outlook
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Cytonn Report: Nairobi Metropolitan Area (NMA) Commercial Office Outlook |
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Measure |
2021 Sentiment |
2022 Sentiment and 2023 Outlook |
2022 Review |
2023 Outlook |
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Supply |
The sector recorded an oversupply of 6.7 mn SQFT of office space in 2021, an 8.3% decrease from the 7.3 mn SQFT realized in 2020 in NMA. This was due to increased demand of physical office spaces as some firms resumed full operations and others adjusted to hybrid model of working both in physical offices and at home. The incoming supply in 2021 came at 0.5 mn SQFT 37.5% lower than the 0.8 mn SQFT recorded in 2020. |
The oversupply of commercial office space declined by 13.4% to approximately 5.8 mn SQFT in 2022 from approximately 6.7 mn SQFT in 2021, attributed to increased demand for office spaces which in turn increased the occupancy rates by 1.8% points to 79.4% in 2022 from 77.6% in 2021 at the back of continuous recovery of economy in post-COVID-19 period. This is as most corporate organizations and businesses reverted to full operations and use of physical spaces. The incoming supply in 2022 came at 0.6 mn SQFT 20.0% higher than the 0.5 mn SQFT recorded in 2021. We expect the office space oversupply to remain unchanged at approximately 5.8 mn SQFT in 2023, attributable to an expected reduction in vacancy rates by 0.9% to 19.7% from 20.6% in 2022, and increase in occupied stock by 0.3% to 29.8 mn SQFT from 29.7 mn SQFT in 2022 even though there will be an expected new supply of 0.3 mn SQFT in the market. |
Neutral |
Neutral |
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Demand |
There was an increased demand for office spaces, evidenced by the 0.1% increase in the average occupancy rates which came in at 77.6% in 2021, from the 77.7% recorded in 2020. This was mainly attributed to full resumptions of operations of corporate organisations and businesses after the lifting of COVID-19 containment measures. Additionally, the absorption of office spaces increased to 0.4 mn SQFT in 2021 from (1.0) mn SQFT recorded in 2020 |
There was an increased demand for office spaces in the NMA, evidenced by the 1.8% increase in the average occupancy rates which came in at 79.4% in 2022 from 77.6% recorded in 2021. This was mainly attributed to as a result of a slow but rising demand for physical space on the back of various firms resuming full operations, coupled with the expansion strategy by various firms such as Call Centre International (CCI) Group and rising trend in serviced office spaces spearheaded by firms like Nairobi Garage, Kofisi, and Regus. In addition to this, the absorption of office spaces increased by 150.0% to 1.0 mn SQFT in 2022 from 0.4 mn SQFT recorded in 2021 attributed to further increase of occupation of physical unserviced and serviced spaces at the back of full operations of businesses and organisations. We expect the occupancy rates to improve mainly attributed to resumption of working from office policies by most companies and reduced developments expected to enter the market in 2023 as compared to 2022. We these factors, we expect will potentially boost absorption rates by 10.0% to 1.1 mn SQFT in 2023, |
Positive |
Positive |
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Office Market Performance |
The commercial office sector performance realized a slight improvement in its overall performance in FY’2021, with the average rental yields coming in at 7.3%, 0.3% points higher than 2020 which recorded 7.0%. The average occupancy rates also increased by 0.1% to 77.6%, from 77.7% recorded in 2020. The improvement in performance was mainly driven by an improved business environment following the lifting of the COVID-19 containment measures, as well as some businesses resuming full operations hence boosting the occupancy rates. However, the 6.7 mn SQFT oversupply in office spaces weighed down the performance of the sector in 2021 due to uncertainty occasioned by incoming general elections which slowed down business operations by most organisations. |
The average rental yield improved by 0.3% points to 7.6% in FY’2022 from 7.3% recorded in FY’2021, due to improved occupancy and rental rates. Average asking rents per SQFT in the NMA increased by 2.1% to Kshs 96 per SQFT from Kshs 94, owing to increased supply of Grade A offices fetching higher rents such as Karen Green and Global Trade Centre (GTC) Office Tower, among others. The overall occupancy rates increased by 1.8% points to 79.4% from 77.6% as a result of a slow but rising demand for physical space on the back of various firms resuming full operations, coupled with the expansion strategy by various firms such as Nairobi Garage and Call Centre International (CCI) Group. We expect sector performance to slightly record a positive increase in rental yields by 0.1% points to 7.7% in 2023 attributable to: i) increased trend in serviced office spaces, ii) slow but rising expansion in the sector after the peaceful general elections in 2022 and continuous traction of the economy towards pre-COVID-19 levels, and, iii) reduced developments in the pipeline which we expect will help curb the oversupply challenge and improving the absorption rates of available and fewer incoming spaces. We expect that this will boost occupancy rates and asking rents thereby improving average rental yields. However, the expected oversupply of office spaces at 5.8 mn SQFT in the NMA is expected to weigh down optimum performance of the sector by crippling the overall demand for physical space. |
Neutral |
Neutral |
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We expect a neutral performance in 2023 unchanged from 2022. The sector will be mainly supported by the full resumption of operations by most firms and businesses at the back of improved economy from a peaceful electioneering period of 2022 and adjusting tractions towards pre-COVID-19 performance in the sector. We also expect increased uptake of the serviced office spaces which will potentially improve occupancy rates in the sector as more co-working space firms enter the market such as Regus, Kofisi, Office.co and many more. The increased evolution in the serviced spaces and competition by firms offering co-working space services have led to more creative ideas and diversification in use of vacant spaces such as niche-centred office spaces which are tailored according to specific genders, professions, mindsets, needs or shared interests of clients. However, the persisting oversupply of office spaces currently at 5.8 mn SQFT is expected to weigh down the overall occupancy rates and yields of the sector. Investment opportunity lies in Gigiri, Westlands and Karen supported by relatively low supply of office spaces, and high returns of 8.7%, 8.3%, and 8.3%, respectively, compared to the market average of 7.6%, as at FY’2022. |
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Source: Cytonn Research
For the detailed report, see link;
Notes to the Editor:
Cytonn Investments is an independent investment management firm with offices in Nairobi - Kenya and D.C. Metro - U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs 82.0 billion of investments and projects under mandate, primarily in real estate.
For more information, kindly contact:
Teresia King’ara
Brand and Communications
+254 704 597 107
Email: tkingara@cytonn.com
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