Future real estate developments hinge on the newly passed Landlord-Tenant Bill
Kampala, Uganda | ISAAC KHISA | Rent for office space in prime locations in Kampala City has remained stable for the past six months.
Property agency firm, Knight Frank has attributed this to the increasing number of tenants seeking rental properties out of the Central Business District (CBD).
The firm said in its latest report that rent has remained at $14.5 per square metre in some properties over the same period under review.
However, rental rates in the sub-urban developments in the city have recorded an increase of 4.6% from $21.81 to $ 22.86 per square metre as tenants flee the city centre.
“This relates to secondary space in malls achieving slightly higher rentals as consumers continue to transition away from CBD shopping into sub-urban malls, as retailers seek to leverage on this trend by opening stores in the malls, therefore creating demand for space and increasing rental rates,” the report reads in part.
Similarly, rent for a 3-bedroom apartment recorded a 5% drop to $2,750 in the first half of this year as supply outstripped demand.
The report says demand for modern stand-alone houses in the prime residential suburbs such as Nakasero, Naguru, Kololo, Bugolobi and Mbuya also increased during the same period under review.
However, 2- bedroom apartments recorded a 7% increase in rent to US$2,250 as demand outstripped supply for singles and double –bed room units.
Knight Frank report said overall Kampala office market registered a 2% growth in occupancy compared with the same period in 2018 as a result of a 3% increase in occupancy rates for Grade B+ buildings from 78% to 81%.
“The increase in occupancy of Grade B+ properties is on account of tenants taking advantage of a soft office market at present to drive harder bargains for lower rentals, particularly for less prime properties,” said Knight Frank Uganda Managing Director, Judy Rugasira.
She said other key drivers of office take-up include good location and accessibility, ample parking, space configuration and functionality, professional property management services as well as the quality of services and facilities at the properties for rent.
Knight Frank recorded a 1% increase in occupancy rates for Grade A properties from 92% registered in the first half of 2018 to 93% in the same period of 2019.
But the addition of approximately 18,000 square metres of Grade A lettable space during the first half of the year is expected to have a negative impact on occupancy rates for Grade A space in the second half of 2019 if existing supply does not meet demand, the report says.
The property management firm said approximately 11,000 metres square of office space was leased in the first half of this year, with legal services, logistics, tour & travel and insurance firms accounting for 20%, 20%, 12% and 12% of the space leased, respectively.
Occupancy rate to reduce
Knight Frank projects a 3%-5% reduction in occupancy rates for Grade A office space due to the addition of approximately 20, 000 square metres of lettable space based on the average absorption rate of approximately 11,000 metres square in the past six months.
“However, we expect net rents and yields to remain stable at an average of $15.5 per square metres and 9.5% respectively. Core drivers will continue to gravitate towards the location and building amenities,” says the report, adding that there is a likely increase in demand for co-working space to pick up given the increase in enquiries recorded for serviced-offices during the past six months predominantly from small-medium start-up firms.
Similarly, Knight Frank projects a 2% reduction in residential rents for apartments for 3 bed room units as supply continues to outstrip demand in the prime residential suburbs.
However, the increase in inquires for modern standalone houses registered in the first half of this year is expected to push up demand for the limited stock of these existing houses.
“This, in turn, is expected to positively impact house prices in the range of 5%-10%,” the report notes.
Going forward, Knight Frank anticipates that the future investment in the real estate development and leasing hinge on the repercussions of the Landlord-Tenant bill if signed into law in its current state.
“As a result, Knight Frank forecasts a reduction in the intensity of leasing activity and pipeline development completions in the entire real estate sector as the bill in its current form, which bans rental income streams in US dollars will negatively impact investors, landlords, and developers with foreign currency debt,” states the report.
The report notes that the country’s real estate industry as cited by Bank of Uganda had an equivalent of approx. Shs 1.3 trillion of debt in US dollars as of April 2019 that investors, landlords, and developers could struggle to repay if they are unable to generate foreign currency incomes.