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Falling demand takes toll of Kampala property market
Posted Saturday, August 16 2014 at 14:59
In Summary
- Demand for prime office space has dipped, leaving property managers stranded with empty floors in commercial buildings for more than six months while new office premises are struggling to achieve occupancy rates of 50 per cent.
- Property managers have thus revised their products to include incentives like one free month for new tenants.
- Analysts project sharp declines in rental charges in coming months as some property managers seek to minimise on widespread vacant spaces.
A slowdown in oil and gas industry activities coupled with aid cuts, has resulted in excess supply of commercial office space in Kampala.
According to real estate agents, this is hurting Kampala's property market as it takes several months to fill vacant spaces in old and new premises.
Some new commercial buildings have sprouted in Kampala's upmarket business zone since 2012, but falling demand has diminished opportunities for many players.
Analysts argue that commercial buildings in the upmarket zones had been driven by the anticipated entry of several new players targeting opportunities in Uganda's oil and gas sector ahead of the commercial production phase.
But unexpected delays experienced by Total, Tullow Oil and China National Offshore Oil Corporation in securing final approvals for field development plans have reportedly frustrated foreign players keen on providing field technical services.
"Most of the new property developers were targeting new firms anticipated in the oil and gas industry prior to the start of commercial oil and gas production but the supply has already exceeded demand. As a result, average rental fees for several buildings in the downtown area could drop significantly over the next six months as property owners struggle to fill empty spaces," said Stephen Kaboyo, a financial analyst and forex trader.
Some affected investors have been forced to close shop while others have moved to Kenya in the hope of reaping from a promising and vibrant oil exploration sector.
As a result, demand for prime office space has dipped, leaving property managers stranded with empty floors in commercial buildings for more than six months while new office premises are struggling to achieve occupancy rates of 50 per cent.
For example, Workers' House — a prime commercial building located in the city centre — has recorded 70 per cent occupancy rate since last year but is struggling to fill empty floors vacated by previous clients that included the Uganda Securities Exchange.
In comparison, new commercial premises located in the neighbouring Nakasero commercial area have recorded average occupancy rates of less than 50 per cent during the same period, with some occupied by just two corporate clients.
Rental charges for commercial premises in Nakasero range between $18 and $20 per square metre, with Workers' House charging a higher rate of $23 per square metre.
In contrast, commercial space located close to the downtown area goes for between $10 and $15 per square metre, according to unverified statistics obtained from industry sources.
Incentives
Property managers have thus revised their products to include incentives like one free month for new tenants. Analysts project sharp declines in rental charges in coming months as some property managers seek to minimise on widespread vacant spaces.
Some property owners attribute the falling demand to previous aid cuts implemented by Western donors disgruntled over corruption and the enactment of an anti homosexuality law that was recently annulled by the Constitutional Court.
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