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Declining uptake of office spaces unlikely to recover as corporates test working from home formula – analyst

NAIROBI, Kenya, Apr 27 – The coronavirus pandemic will ravage the commercial office sector, which already is on a decline, a new finding has said.  

According to Cytonn Research Analyst Wacu Mbugua, many corporates have now tested the working from home formula, and as such, it is unlikely that occupancy levels will recover to the levels they used to be at previously, at least in the medium-term.

The researcher further revealed that the sector’s outlook is negative, given the current office space oversupply and expected stagnation in performance in 2020 given the current Coronavirus pandemic.

Wacu added that expectations are for a slowdown in construction activities allowing the existing demand to absorb the current supply.

She spoke in response of the company’s report, which reveals a softening of the sector in the past year with a 0.7 percent point year on year drop in average rental yields to 7.7 percent, from 8.3 percent in 2018.

The report attributed the performance to a decline in uptake of office space owing to a tough financial environment, and an oversupply of 6.3 million SQFT which has created a bargaining chip for potential tenants, thus lower rental rates.

Gigiri, Karen and Westlands were the best performers in 2019 recording rental yields of 9.2 percent, 8.3 percent, and 8.3 percent, respectively.

This has been attributed to increased demand by businesses and multinational companies due to their proximity to the Central Business District (CBD) and other business nodes, relatively good infrastructure network, their superior locations and availability of quality Grade A offices, enabling them to charge a premium on rentals.

According to the report, the investment opportunity within the Nairobi Metropolitan Area is in areas with low supply and high returns such as Gigiri and in differentiated concepts such as mixed-use developments (MUDs) and serviced offices recording rental yields of up to 7.9 percent and 12.3 percent, respectively.

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