By Moses Kaketo
The coming up of new and good quality office space at competitive rates has left landlords of buildings of yesteryear crying as tenants relocate to modern building with better facilities like modern parking, elevators, AC’s among others.
But that is not all, according to 2015 Africa report by Knight Frank entitled Real Estate markets in continent of growth and opportunity, There is a significant oversupply of office space in Kampala, which has tilted the balance of power in negotiations in the favour of tenants. This according to analysts has greatly impacted headline rents and lease terms.
The oversupply is also result of many businesses that have relocated to first growing suburbs.The once residential areas like Ntinda Ministers’ village, Nakasero, Kiwatule, Muyenga, and Bugolobi have been turned into offices. From private organizations to NGOs, government institutions to embassies, many are establishing offices in suburbs where rent fees are still low.
KCCA has embraced this development. All roads for example in Ministers’ village in Ntinda have been tarmacked alongside the walkways.The people we spoke to described suburbs as offering a ‘friendly business environment’.
The central business district (CBD) known for its riots and traffic jam, compounded by lack of parking for customers. Some buildings are said to be losing tenants because clients have nowhere to park. Nearly all roads (that used to be parking) have been blocked by KCCA.
The Knight Frank report notes that the demand is currently strongest for relatively small and affordable office space of between 100-250 sq m.
The growth of Uganda’s retail market continues at a steady pace, supported by rapidly increasing consumerism and the expansion of the middle class.
Prime retail headline rents goes for about US$25 per sq m per month in shopping centres such as Acacia Mall and Village Mall. A major challenge to the sector has come from frequent terror threats and warnings, which have negatively impacted dwell times in malls.
According to report, despite this, there are immense growth opportunities; the purchasing power of Ugandan consumers is set to improve with the imminent commencement of oil production and the large youth population provides a significant target demographic for retailers.
Uganda’s industrial sector is largely dominated by owner-occupied property. This trend is changing with the steady development of the Kampala Industrial Business Park.
Land owners at the park have been given ultimatums to develop the plots allocated to them or risk losing their land as it reverts back to the Uganda Investment Authority. This has resulted in the increased speculative development of warehousing space. Traditional industrial locations within the city centre have been rezoned for commercial redevelopment, and manufacturers and industrial companies have been pushed to relocate to new premises in KIBP. This has led to an increasing number of prime industrial plots being marketed for sale, a trend which will continue in the short to medium term.
The demand for residential rental property slowed during 2014, due to the departure of ex-pat staff of major oil companies like Total as the industry moves from the exploration to the production phase.
The supply of mid and high level residential properties currently outstrips demand, although demand is stronger for apartments than for standalone houses. Prime residential yields have steadied at between 9-10 percent. Demand for mid-income properties has remained firm on the back of stable, albeit still relatively high, mortgage interest rates.
Property bubble expected in Kampala soon
As more businesses close and more relocate to suburbs, coupled with the increase in the value of land in Kampala (for example no plot of land within Kampala CBD goes for less than $2m), rent prices are increasing and making it difficult to afford by most businesses.
As a result, a new trend is emerging: most financial institutions are now investing in constructing own buildings to house their head offices. First it was Housing Finance bank that built in Kololo. Now Pride Micro-finance and dfcu bank have followed suit. More organizations are investing in building their own offices as a long-term strategy to reduce on the fixed cost of rent. As this move continues, a lot of rental space will be available. This coupled with high costs of building in the CBD, will lead to lots of empty buildings.
Already, some buildings in town have tenants only on the first few floors. The last three floors do not have tenants.