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The developers in prime areas like Nakasero and Kololo have responded to these market dynamics by replacing older, detached houses with modern apartment blocks
Kampala, Uganda | THE INDEPENDENT | Kampala’s property market is undergoing significant changes as property owners increasingly shift their tenancy preferences from long-term leases to short stays, particularly for furnished apartments.
This trend, observed in high-density residential areas such as Kyanja, Kisaasi, Najjera, Bukoto, Mutungo, Muyenga, and Kigo, is a direct response to declining occupancy levels in traditional long-term rental arrangements.
According to the H1 2024 Kampala Property Market Review by Knight Frank, this shift has been further accelerated by the growing use of online booking platforms, making it easier for both tenants and property owners to engage in short-term rental agreements.
The ease of access and flexibility offered by these platforms have made them a preferred choice, especially in areas where short-term renters are plentiful.
This shift in tenancy preferences comes at a time when Uganda’s real estate market is grappling with an oversupply of properties. The market is flooded with distressed assets, largely driven by bank repossessions and ongoing developments. The oversupply has created a buyer’s market, particularly in the residential sector, where demand has remained tepid.
The prime residential market, for instance, recorded a slight decline in occupancy levels—from 82% to 81%—during the first half of 2024, with little movement in sales and lettings. This sluggish performance has been exacerbated by tight monetary conditions, with the Central Bank Rate (CBR) at 10.25%, the highest since May 2017, and average interest rates hovering around 20.8%. High inflation and reduced disposable incomes have created a credit squeeze, leading to indecision among potential buyers who are presented with numerous options, the report notes.
Nakasero, Kololo property owner’s response
Interestingly, developers in prime areas like Nakasero and Kololo have responded to these market dynamics by replacing older, detached houses with modern apartment blocks. These new developments take advantage of economies of scale, offering higher rental incomes from multi-let units and reduced operational costs.
However, this densification trend has created a gap in the market for stand-alone houses, pushing tenants to seek such properties in secondary areas like Mbuya, Munyonyo, Muyenga, and Bugolobi.
The commercial office sector has not been spared from the sluggish market conditions. The sector recorded a low volume of sales and lettings in H1 2024 compared to the previous year. While demand for prime office space persists, there has been a slight increase in vacancy rates for Grade A and AB properties. The demand for smaller office spaces (50-150 sqm) remains steady, particularly from sectors such as IT/Telecom, legal services, and financial services.
However, deals for larger office spaces are taking longer to conclude due to complex decision-making processes and stringent requirements from regulatory bodies like the Uganda Registration Services Bureau (URSB) and the Uganda Revenue Authority (URA).
The industrial sector, traditionally resilient, has also faced challenges. H1 2024 saw a slowdown in the uptake of warehouse space, with demand primarily coming from the food and beverage sector and coffee exporters.
There has been a noticeable shift in demand for industrial properties for sale towards industrial land, as buyers prefer to construct their warehousing facilities rather than purchasing existing ones. Despite stable rental levels, tenants continue to negotiate hard for flexible lease terms, reflecting the reduced demand for space.
Retail sector remains resilience
The retail sector, in contrast, has shown signs of resilience. The first half of 2024 registered a notable performance, benefiting from a recovering economy and increased occupancy levels driven by new market entrants and the expansion of existing retailers. Strong product and tenant-mix offerings within various malls have also contributed to the sector’s growth.
Key retail events such as back-to-school seasons, Valentine’s Day, Easter, and Eid provided a significant boost to the sector, resulting in a 30% increase in general retail turnovers on an annual basis, while footfall figures showed a 5% growth, and occupancy levels increased by 3%.
The report notes that the outlook for the retail sector in H2 2024 remains optimistic, bolstered by the anticipated improvement in economic activity, the launch of new stores, and a stable currency.
The report notes that the investors’ sentiments remain positive, with a further 1,606 square meters of retail space expected to open within various malls in the fourth quarter of 2024.
