Office Rents Remain Low as Occupancy Rate Jumps to 77% in Kenya

Kenya’s office market is witnessing a significant shift as the average occupancy rate rises to 77%, surpassing Africa’s average of 75%. This increase, a 5% jump from previous levels, is attributed to the gradual return to the office following disruptions caused by the COVID-19 pandemic. According to the latest data from property firm Knight Frank, this trend reflects a broader movement towards stabilizing commercial real estate markets across the continent.

Gradual Return and Increased Demand

The pandemic forced many companies to adapt to remote work, leading to a decline in office space demand. However, as businesses transition back to in-person work, there is renewed interest in office occupancy. Knight Frank’s 6th edition of The Africa Report 2024/25 highlights that this return has been instrumental in boosting Kenya’s office occupancy rates.

“Companies are gradually returning to the office, which is a positive indicator for the office market. The disruption caused by the pandemic is subsiding, and businesses are finding value in having a physical presence again,” said Mark Dunford, Knight Frank Kenya’s Chief Executive Officer.

Limited Supply of Prime Offices

Despite the increase in occupancy rates, Kenya faces a limited supply of prime office spaces. The report notes that only 617,000 square meters of new prime office space is expected to be available by the end of 2024. This constrained supply, coupled with steady demand, could potentially create a more competitive market for high-quality office spaces.

“There is a continent-wide increase in demand for grade A offices, particularly those with environmental, social, and governance (ESG) ratings. This mirrors a global move towards more sustainable buildings, not only because the built environment is responsible for 40% of global carbon emissions, but also because of the direct link between talent attraction, retention, and the occupancy of ESG-compliant buildings,” Dunford explained.

The ESG Influence

The push towards ESG-compliant buildings is reshaping the commercial real estate landscape. Businesses are increasingly prioritizing sustainability, not just to reduce carbon footprints but also to attract and retain top talent. The demand for grade A offices with strong ESG credentials is on the rise, and Kenya is no exception.

“This occupier behavior is encouraging developers to refurbish older buildings to meet the growing demand for ESG-compliant grade A offices. Indeed, this trend is already seen in a number of markets as office landlords move to sustain both demand and occupancy levels,” Dunford added.

Westlands: Kenya’s Office Hub

Westlands, Nairobi’s primary office hub, exemplifies this trend. The area has seen an influx of new flexible office operators such as Regus, Spaces, and Ikigai. These operators cater to the increasing preference for flexible workspaces, providing businesses with the adaptability they need in a post-pandemic world.

“Westlands has recently welcomed new flexible operators, reinforcing the area as the nation’s preferred office hub. This trend is indicative of a broader shift towards flexibility and sustainability in the office market,” noted Dunford.

Rental Rates and Market Dynamics

Despite the positive trends in occupancy and demand for flexible workspaces, Kenya’s office rental rates have remained low compared to other African markets. Over the past four years, prime office rental rates have fallen by 15% to $13 per square meter. This decline is primarily due to a historical supply overhang that has kept rental prices subdued.

“Despite the positivity surrounding flexible offices, prime office rental rates have fallen by 15% over the past four years to $13 per square meter, underpinned by the historic supply overhang. This trend is, however, expected to reverse this year as the supply imbalance begins to recede due to rising deal activity,” the Knight Frank report states.

Comparative Analysis with Other Markets

Kenya’s office market dynamics contrast with those of other African countries such as Uganda, Egypt, South Africa, and Nigeria. These markets have seen higher office rental rates and increased demand for co-working spaces. The disparity can be attributed to various factors, including differences in supply and demand, economic conditions, and the pace of post-pandemic recovery.

In Uganda, for instance, the demand for co-working spaces has surged as businesses look for cost-effective and flexible office solutions. Similarly, Egypt has witnessed a rise in office rental rates driven by a growing economy and increased foreign investment. South Africa and Nigeria also report higher office rental rates, reflecting robust demand in their commercial real estate markets.

Future Outlook

Looking ahead, the future of Kenya’s office market appears promising. The expected reversal of the downward trend in rental rates indicates a potential recovery in the market. As the supply imbalance diminishes and demand for high-quality, ESG-compliant offices grows, rental rates are likely to stabilize or even increase.

“The market is showing signs of recovery. With the supply of prime office spaces being limited and demand for ESG-compliant buildings rising, we anticipate a positive shift in rental rates. This will benefit both landlords and tenants as the market becomes more balanced,” Dunford observed.

Kenya’s office market is navigating through a period of transformation. The increase in occupancy rates and the rising demand for sustainable office spaces are positive indicators of recovery and growth. However, the limited supply of prime office spaces and the current low rental rates present challenges that need to be addressed.

The emphasis on ESG-compliant buildings reflects a global trend towards sustainability and responsible business practices. As companies prioritize these values, the commercial real estate market must adapt to meet the evolving demands.

Westlands’ emergence as Kenya’s primary office hub and the presence of flexible workspace operators highlight the shift towards more adaptable and sustainable office solutions. As the market continues to evolve, stakeholders must focus on fostering an environment that supports growth, sustainability, and innovation.

With the anticipated reversal of the rental rate decline and the stabilization of supply and demand dynamics, Kenya’s office market is poised for a brighter future. The commitment to ESG principles and the gradual return to the office signal a new era for commercial real estate in the country.