Kampala tenants flee city centre

Rent drops but top property agency sees short-term gloom before long-term boom

Rent for office space in prime locations in Kampala city has taken an almost 30% fall as tenants flee the city’s Central Business District (CBD), according tothe latest report from the property agency Knight Frank.

Rents have dropped to as to as low as $12, from highs of $15-16.5 per square metres in some properties over the period.

The decline in property rents in Kampala over the last six months is likely to persist in the mid-term but innovative property investors could reap when demand inevitably picks up, according to Knight Frank.

Judy Rugasira, the managing director at Knight Frank Uganda, told journalists on July 08 that majority of the tenants in Kampala are now choosing rental office spaces out of theCBD which has become synonymous with congestion.

“We foresee this trend continuing as the key demand drivers of commercial office space continue to look for office space out of the congested central business district,” Rugasira says.

“According to our research, many retail tenants generally registered low sales during the first quarter of 2016 compared with the same period last year; and this is partly attributed to the slowdown in the economy given that the country witnessed an election period during the first quarter of the year and investors withholding their investments,” she said.

She said the average daily traffic in the retail segment reduced by 2.1% compared with the first and second quarters of the year, with retailers putting pressure on property owners to charge them rent in shillings instead of foreign currencies to easily manage their monthly rental bills.

However, this request, if granted, would be detrimental to the landlords as their financial obligations are pegged on the dollars.

Presently, it is only the top property mogul Sudhir Ruparelia who has announced a shift to charging rent in shillings on some of his properties in the country. This is in response to members of the business community crying out over surging rent costs as the shilling weakens.

The business community, especially those operating in shopping malls, have – through their Kampala City Traders Association (KACITA) – protested against paying rent in dollars. They say they get hit particularly when the shilling depreciates.

More gloom before boom

Looking at the outlook for the second half of the year, Knight Frank says the property market will remain weak on the back of revelations by Bank of Uganda that the economy may slow down further in the next 12 months as emerging market economies see slowdowns and reduced demand leads to a tumble in the prices of the country’s exports.

The firm also projects high demand and supply disequilibrium for middle income and affordable housing as supply in the prime residential segment runs the risk of becoming saturated amidst limited demand in the mid-term. This could result in fall in prices and reduced occupancy.

Rugasira says the property market is expected to pick-up, but with caution since interest rates are likely to remain high, the shilling weak, and the demand for both prime office and residential accommodation lagging behind.

However, it is not all gloom.  Marc Du Toit, the head of retail at Knight Frank says whereas the demand for retail tenancy reduced during the first half of the year,  it will continue to grow as more businesses are looking at further expansions  alongside the emergence of start-ups especially in the fashion industry.

“East Africa’s leading retailer Nakumatt has expansion plans to penetrate Ntinda Market, with the opening of a branch at Ntinda Complex targeting the catchment area of Ntinda, and the secondary catchment area,” Toit says , adding that Sportswear company, Adidas, is also planning to  expand its footprint on the Ugandan market  soon.

He adds that property owners especially in the central business district will need to refurbish their properties to meet the standards of the upcoming malls such as Arena Mall in Nsambya and Imperial Mall in Entebbe, to retain clients, who are now more adventurous and looking for unique products and services.

The firm is also optimistic that the passing of the amended financial bill that allows banks to engage in agency banking, Islamic banking, and bank assurance will be a catalyst for increased economic activity over the next half of the year through increased access to financing for trade and investments, stirring growth of the property market.

Warehousing, industrial properties hit

While commenting on the Knight Frank report, KACITA Executive Director Everest Kayondo said low occupancy and `To Let” signs have become commonplace in Kampala as the majority of potential tenants people choose spaces out of the CBD.

He said those remaining within the city prefer to rent only the first and second floors, leaving the rest of the building with a lot of empty spaces.