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Rental rates are expected to drop as supply exceed demand
Kampala, Uganda | ISAAC KHISA | Rent for office space in prime locations in Kampala City has recorded a 10% decline as tenants opt for small space, latest data from property agency, Knight Frank shows.
Rent has dropped to as low as $11.7 per metre square from as high as $16.6 per metre square in some properties over the past six months.
The rents for the prime office space is expected to decline further owing to a surge in supply, the report notes.
“The total volume of office space in the pipeline is increasing, hence prime office rents are expected to decline owing to increasing supply,” the report says.
The occupancy rates for the prime office space registered a 3% year-on-year decline from 86% in the second half of 2018 to 83% as at December last year, as multinationals and large corporates opt for smaller office space amidst an additional 18,000 square metres of office space on the property market.
“As a result, Knight Frank has observed a 4% increase in leasing activity for smaller office occupiers (less than 200square metres) particularly start-ups, who prefer flexible office terms and solutions (including shared and serviced offices) which best suit their requirements,” Knight Frank Managing Director, Judy Rugasira said.
She said the biggest percentage of office space was leased to government funded projects in the road sector, start-ups particularly in the information and communication technology and insurance firms.
In relation to residential flats, rental rates for prime residential apartments in prime locations such as Kololo, Nakasero and Naguru have recorded a 1.25% decline to $1,750 for a two-bedroomed apartment, $2,750 for a three-bedroomed apartment and $5,000 for a 4-5 bedroomed apartment during the period under view, as landlords strive to attract tenants who would have otherwise chosen to live in secondary suburbs like Muyenga, Mutungo and Ntinda.
“Additionally, we have registered an increase in enquiries for 2 bed apartment units which expatriates who are single and young couples are showing a preference for,” the report says, adding that the variance between asking and achievable rents for apartments in the prime residential sector is widening in response to the increase in supply of private rented accommodation, and thus putting downward pressure on rents.
On the other hand, the Knight Frank report also notes that the real estate sector has not registered any change in the prime residential sales market, with sellers and buyers adopting a “wait and see” strategy dependent on the macro-economic conditions and thus leading to stagnation of absorption rates of properties available for sale.
Similarly, rents for the older stock of warehouse space declined from an average rate of $5.50 per metre square registered during second half of 2018 to $4.75 per metre square during the second half of 2019 due to slow leasing activities.
However, rents for the newly built or refurbished industrial space have stagnated at an average rate of $5.75 per metre square. The report indicates that the Kampala Industrial Business Park (KIBP) remains a preferred location for owner occupiers and big space users.
Meanwhile, rental rates in properties leased by retail businesses remained stable during the past six months as property demand almost equalled supply.
Metroplex Mall, for instance, commenced with its redevelopment that will see an upgraded mall open in the first half of 2020, with new and improved access.
The mall will be anchored by international traders being Carrefour supermarket (their second store in Kampala), Century Cinemax Cinemas, and a new and improved Woolworths amongst numerous local and multi-national retailers.
Acacia Mall saw the expansion of Woolworths from a 550 metres square store to an 830 metres square store as LC Waikiki, the Turkish departmental store confirms its planned entry into Uganda on the same property.
Similarly, Village Mall, in Bugolobi saw the opening of East Africa’s, home grown, Cafesserie and Lintons during the period under review.
Victoria Mall in Entebbe has seen changes in the tenant mix of the line stores with more fashion and curio stores opening therein. On the other hand, Arena Mall in Nsambya is nearing completion, and is due to open in the next six months.
Future outlook
Going forward, Rugasira says residential rents are expected to drop further as landlords of recently completed apartment blocks compete for the limited pool of corporate and expatriate tenants who can afford prime residential properties.
She says the total volume of office space in the pipeline is increasing, a development that is likely to drive rental costs downwards owing to increasing supply.
“Above all, the current uncertainty associated with the Landlord-Tenant bill has continued to negatively affect new developments and leasing activity across the entire real estate market, as many international investors are still adapting a “wait and see approach” and monitoring the real estate market,” She said.
“We anticipate the same trend to be carried forward in first half of 2020 with further reduction in the intensity of leasing activity and pipeline development completions in the entire real estate sector if the bill is signed into law in its current state.”
Parliament in June last year passed the Landlord and Tenant Bill, 2018, that seeks to among other things regulate the relationship between landlords and tenants in commercial and residential properties. However, President Yoweri Museveni is yet to assent to it to officially become law.
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