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Financial service sector driving office absorption in Nairobi

Financial service sector driving office absorption in Nairobi

When coronavirus pandemic hit Kenyan shores in March last year, businesses across the country opted to put office requirements on hold in the wake of a battered economy when companies resulted to massive layoffs as others winded up.

In second quarter of this year, however, the levels of office enquiries and activity started to increase when landlords became more flexible who allowed for discounted rents and lease concessions such as rent-free periods ensuring improved levels of take up as they bid to attract and retain new occupiers.

This measure saw the share of new office space requirement go up in the period under review where financial service sector took the lead in office occupancy in Nairobi at 31 percent.

It was followed closely by Industrial and Logistics sector at 23 percent, NGOs at 15 percent then  Business and Professional services, Construction and Telcom sectors each taking up 8 percent of office space in the city.

According to Knight Frank’s Q2 2021 Africa Office Market Dashboard, the increased office market activity has underscored the ‘flight to quality’ trend with businesses taking advantage of more affordable rental levels.

It was coupled by the chance to occupy better quality office accommodation with improved facilities placing employee wellbeing at the forefront.

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“The future of the office is certainly not dead and we are seeing contrary signs of a push to return to the office both from organisations but also led by employees. This has been evident in the number of enquiries that we are receiving plus the active requirements with key sectors such as financial services and NGO’s driving demand. We continue to see the trend of Nairobi being the regional focus as multinationals confidence returns and they look to either enter the market here for the first time or expand their existing operations,” said Anthony Havelock, Head of Agency, Knight Frank Kenya.

Nairobi has continued to see a gradual return in business confidence reflected by the increased number of business entities registered.

According to the Registrar of Companies there was a 25 percent month on month change with 8,483 companies registered in July 2021 compared to 6,786 companies registered in June 2021.

Knight Frank anticipates this will result in increased demand for offices later in the year.

Across the 28 African cities Knight Frank monitors, prime headline office rents remained relatively resilient with 16 out of the 28 cities tracked experiencing rental stability during Q2 2021.

However, market performance continues to vary based on the country. Nigeria for example has recorded increased occupier activity in the market driven by office relocations from the CBD to the suburbs, as occupiers gravitate to locations offering both better quality accommodation, as well as more affordable occupational costs.

“The overarching trend across Africa’s office market has been the flight to quality. Occupiers remain intent on occupying flexible spaces that place employee wellbeing above all else but also with favourable lease terms. As such, tenant released space has been a key concern to landlords in Grade B buildings in some of the countries,” said Tilda Mwai, Senior Researcher Knight Frank Africa.

In locations such as Tanzania, Knight Frank anticipates the prime office market will recover underpinned by renewed investor confidence fuelled by the new leadership.

However, markets such as South Africa continue to see increased vacancy rates and downward pressure on prime rents against the backdrop of the pandemic and existing supply glut prompting landlords to offer incentives and discounts.

Professional services sector has continued to fuel demand accounting for 28 percent of all the new office requirements alongside the industrial and logistics sector that accounted for 16% of new requirements.

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