Mombasa Road was the worst performing office node in the Nairobi Metropolitan Area (NMA) with average rental yields of 5.1 percent in 2021, 2.0 percent lower than the market average of 7.1 percent.
This is according to the Nairobi Metropolitan Area Commercial Office Report-2022 released by Cytonn Real Estate, the development affiliate of Cytonn Investments.
The poor performance was mainly driven by the low average rents at Ksh 73.0 per SQFT compared to the market average of Ksh 93 per SQFT, zoning regulations as Mombasa Road is mainly considered an industrial area thus making it unattractive to business firms, and current traffic snarl-ups caused by the ongoing Nairobi Expressway project thus making the area unattractive. However this is a temporary situation as experts expect the area to record improved performance upon the completion of the project.
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On the other hand, Gigiri and Westlands were the best performing nodes with average rental yields of 8.6 percent and 8.1 percent, respectively, compared to the market average of 7.1 percent, in 2021. This was mainly attributed to the presence of high quality offices attracting high rents.
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 percengt points in the period of focus.
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Serviced offices realized a 0.8% Y/Y rental growth to Ksh183 per SQFT in 2021, from Ksh161 per SQFT recorded in 2020. In comparison to the unserviced offices which recorded average rents of Ksh93, the average rents for the serviced offices were higher by 49.2 percent in 2021. The remarkable performance was mainly attributed to convenience resulting from access to existing facilities, flexibility of the leases, and no set-up costs required.
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 percent, 0.1 percent points higher than the 7.0 percent recorded in 2020. The average occupancy rates increased as well by 0.2 percent to 77.9 percent, from 77.7 percent recorded in 2020. The improved performance was largely driven by relaxation of COVID-19 restrictions, positive demographics, and Nairobi’s recognition as a regional hub hence attracting foreign investments.
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