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 2021
According to the report, the Commercial Office sector realized an improvement in its overall performance in 2021, with the average rental yields coming in at 7.1%, 0.1 % points higher than the 7.0% recorded in 2020. The average occupancy rates increased as well by 0.2% points to 77.9%, from 77.7% recorded in 2020. The improved performance was largely driven by: i) Relaxation of COVID-19 restrictions, ii) positive demographics, and, iii) Nairobi’s recognition as a regional hub hence attracting foreign investments. The Nairobi Metropolitan Area (NMA) commercial office market performance by nodes-2021 is summarized below;
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(All values in Kshs unless stated otherwise) |
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NMA Commercial Office Submarket Performance 2021 |
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Area |
Price /SQFT (Kshs) 2020 |
Rent /SQFT (Kshs) 2020 |
Occupancy 2020 |
Rental Yields 2020 |
Price Kshs/ SQFT 2021 |
Rent Kshs /SQFT 2021 |
Occupancy 2021(%) |
Rental Yield 2021 |
∆ in Rent |
∆ in Occupancy |
∆ in Rental Yields |
|
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Gigiri |
13,400 |
116 |
82.5% |
8.5% |
13,500 |
119 |
81.3% |
8.6% |
2.3% |
(1.2%) |
0.1% |
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Westlands |
11,975 |
104 |
74.4% |
7.8% |
11,972 |
104 |
75.5% |
8.1% |
0.4% |
1.1% |
0.3% |
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|
Karen |
13,567 |
106 |
83.6% |
7.8% |
13,325 |
106 |
83.0% |
7.7% |
(0.4%) |
(0.6%) |
(0.1%) |
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|
Parklands |
10,958 |
93 |
79.9% |
7.6% |
11,336 |
91 |
80.1% |
7.6% |
(1.4%) |
0.2% |
0.0% |
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|
Kilimani |
12,233 |
93 |
79.1% |
6.8% |
12,364 |
91 |
79.8% |
7.1% |
(1.5%) |
0.7% |
0.3% |
|
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Upperhill |
12,684 |
92 |
78.5% |
6.9% |
12,409 |
94 |
78.0% |
7.0% |
2.2% |
(0.5%) |
0.2% |
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Nairobi CBD |
11,889 |
82 |
82.4% |
6.8% |
11,787 |
82 |
82.8% |
6.8% |
(0.7%) |
0.4% |
0.0% |
|
|
Thika Road |
12,500 |
80 |
76.1% |
5.8% |
12,571 |
79 |
76.3% |
5.7% |
(1.8%) |
0.2% |
(0.1%) |
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Mombasa road |
11,313 |
73 |
63.0% |
4.8% |
11,250 |
73 |
64.2% |
5.1% |
0.6% |
1.2% |
0.3% |
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|
Node Averages |
12,280 |
93 |
77.7% |
7.0% |
12,279 |
93 |
77.9% |
7.1% |
0.0% |
0.2% |
0.1% |
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Source: Cytonn Research
Gigiri and Westlands were the best performing nodes with average rental yields of 8.6% and 8.1%, respectively, compared to the market average of 7.1%, in 2021. This was mainly attributed to the presence of high quality offices attracting high rents. On the other hand, Mombasa Road was the worst performing node with average rental yields of 5.1% in 2021, 2.0% points lower than the market average of 7.1%. This was mainly driven by; i) the low average rents at Kshs 73.0 per SQFT compared to the market average of Kshs 93 per SQFT, ii) zoning regulations as Mombasa Road is mainly considered an industrial area thus making it unattractive to business firms, and iii) current traffic snarl-ups caused by the ongoing Nairobi Expressway project thus making the area unattractive. However this is a temporary situation as we expect the area to record improved performance upon the completion of the project.
- NMA Serviced Office and Grade Performances
In terms of performance per grade, grade A and B office spaces had the highest rental yields at 7.5% as tenants prefer them because of their relative better technical services in comparison to Grade C office spaces. Grade C offices recorded the largest drop in the average rental rates by 3.3% which in turn led to the largest drop in rental yields by 0.2% points in the period of focus.
Serviced offices realized a 0.8% Y/Y rental growth to Kshs 183 per SQFT in 2021, from Kshs 161 per SQFT recorded in 2020. In comparison to the unserviced offices which recorded average rents of Kshs 93, the average rents for the serviced offices were higher by 49.2% in 2021. The remarkable performance was mainly attributed to; i) convenience resulting from access to existing facilities, ii) flexibility of the leases, and, iii) no set-up costs required.
- Recommendation and Outlook
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE; highlights sectorial outlook
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Nairobi Commercial Office Outlook |
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Measure |
2020 Sentiment |
2021 Sentiment and 2022 Outlook |
2021 Review |
2022 Outlook |
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Supply |
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Neutral |
Negative |
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Demand |
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Neutral |
Neutral |
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Office Market Performance |
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Neutral |
Neutral |
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For 2022, our outlook for the NMA commercial office sector is NEUTRAL, from a Negative in 2021, mainly due to the full resumption of operations by some firms and businesses amidst the improved economy. However, the remote working model still being embraced by some firms, coupled with existing oversupply of office spaces currently at 6.7 mn SQFT are expected to weigh down the overall occupancy rates and yields of the sector. Investment opportunity lies in Gigiri and Karen supported by relatively low supply of office spaces, and high returns of 8.6% and 7.7%, respectively, compared to the market average of 7.1%, as at 2021 |
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Source: Cytonn Research 2022
