Property crush awaits Kampala

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Forest Mall slashes rental price with a new asking price of USD 10 per square meter inclusive of service charge

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By Moses Kaketo

Overpriced rent, the heavy traffic jam, lack of parking space and the erratic riots, are forcing more businesses to relocate outside the central business district (CBD). While those who must have presence in the CBD have resorted to having very small offices for presence and the head office in the suburbs

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There are also countless businesses and organizations that have closed down especially in Kampala. Besides, there are a couple of global companies that have closed their operations in Uganda including British Airways, Eugen Oil among others.

An insurance giant, AIG is the latest to announce it is closing her operations in Uganda. When such businesses close, it goes down with several others.




As a result, several buildings have been abandoned. A dozen buildings/malls remain largely unoccupied. The situation is expected to worsen following a dozen new buildings/ malls nearing completion. Already there are signposts all over Kampala advertising for office space.

New Buildings coming up

 

There are several prime office buildings in the pipeline, including Rumee Towers along Lumumba Avenue; Lotis Towers along Mackinnon Road. There are several other buildings coming up along Kampala road, Kintante, Nakasero, William Street, Entebbe road among others.




Two years later, the building that formerly housed DFCU Bank head offices along Kampala remains deserted. Jumbo Plaza located along Parliamentary Avenue also remains largely unoccupied.

Cham Tower’s [former UCB building] redevelopment is complete, unfortunately the building remains untenanted.

Uganda Revenue Authority (URA), a major tenant in Kampala and the suburbs is almost completing her home [URA Towers] in Nakawa. All this space will be available sooner than later.

With modern offices and shopping malls, the completion of the much-awaited Nakawa- Ntinda Housing Estate is expected to worsen the property crisis in Kampala.




Some companies including the Bukoto based Smile Telecom are downsizing and reducing their rental space.

With more supply than demand, we are likely to experience a property crush in Kampala. Already there are pointers.

Shortly after taking over Forest Mall management, Knight Frank announced reductions in rental prices as it seeks to attract tenants in the mall that had been more less abandoned.

Forest Mall, in a move that is set to shake the retail commercial property announced reductions in its rental prices with a new asking price of USD 10 per square meter inclusive of service charge.

Expert’s speak out




According to the latest Knight Frank Uganda market report: The office sector has been the hardest hit of all the property sectors over the past 24 months. This has seen prime rents falling to as low as $10.00 per sq.m in some properties.

The Kampala outer CBD locations of Kololo and Nakasero, and other prime suburban office locations of Naguru, Bugolobi, Nakawa and Bukoto have been the focal points of office development over the past two years, and this trend is likely to continue as key demand drivers of commercial office space look for premises out of the congested CBD area, where land prices are also considered extortionate.

According to the same report, asking rentals are between USD 11– 15 per square meter per[ Forest Mall has broken the ceiling to price at USD 10 per square meter] month while grade B offices fetch an average of between USD 8 – 10 per square meter per month. The average selling price per sq.m for prime office space was between USD 1,400 – 1,600 per sq.m.

The report says Grade A buildings, maintain a relative fair, occupancy rate while Grade B buildings have a lower occupancy levels averaging at 60%.[as tenants abandon old buildings for grade A buildings] Demand for Grade A space has continued to be driven by Government agencies, financial services sector, especially the insurance sector and credit finance companies that are growing and need more space as a result.




New office stock in prime secondary commercial locations of Bugolobi, Nakawa, Bukoto and Nakasero, have exerted downward pressure on core CBD office properties. The latter sector has not been performing well because most of the stock is old, with limited and expensive parking, and traffic congestion in these locations. Rents have stagnated, or in most cases, are being negotiated downwards.

The demand for smaller office spaces that is  (50–70 m2) by firms who do not need big space ( consultancy and logistics firms,) yet need proximity to their clients in the corporate sector, continued to gather momentum in the prime office locations of Nakasero, Kololo, Naguru and Bugolobi.

Overall, the report notes that the property market has undergone a noticeable decline in sales activity in the high-end residential sales market during Q1 and Q2 2016.




The report notes that the marketing periods for prime property are taking much longer to register interest from potential buyers, and there are few buyers with the capacity to close deals at asking prices. This has led to a downward correction in the market prices of approximately 10%– 15% being achieved in sales prices. The fewer sales that have been concluded were at discounted prices, as buyers took advantage of the ‘‘bearish” market.

 

The recovery

 

 

Analysts at Knight Frank Uganda expect the situation to change once oil production and pipeline construction dates are certain

 

‘There will be increased demand for office accommodation from the oil and gas sector and related services which will reduce vacancy rates, and stabilize rentals somewhat.’’

 

 

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