Prime office occupancy up by 5% amid economic challenges

The occupancy rates of prime office properties experienced a notable increase, rising by 5.0% to 76.5% in the second half of 2023 from 71.5% in the first half of the same year according to a recently published report by Knight Frank Kenya,

This upturn was primarily driven by a decrease in the incoming supply of office spaces and a heightened uptake of existing properties, particularly grade A offices.

Despite facing an oversupply estimated at 5.8 million square feet and challenging macro-economic conditions, including a depreciating Kenyan Shilling and increasing interest rates, the sector managed to perform well during the review period.

The report highlighted extended negotiation periods between landlords, investors, and clients due to the unfavorable business environment.

Moreover, it emphasized the tenant-friendly nature of the Kenyan office market, characterized by downward pressure on rent prices, stemming from an oversupply of rental properties and weakened rental demand.

Lower grade office properties continued to struggle with occupancy rate challenges, while the office sales market remained subdued with minimal transactions. Notably, the iconic UAP Tower in Upperhill, valued at KES 5.5 billion, was listed for sale during the review period.

A notable trend observed in the sector is the increasing preference of landlords to collect rents in dollars, driven by the sustained depreciation of the Kenyan currency.

This move aims to mitigate forex losses. Additionally, financiers are increasingly offering developers dollar-denominated loans as a hedge against Shilling depreciation, further reflecting the impact of currency fluctuations on the real estate market.