OFFICE GLUT

Nairobi built shiny new business districts but not enough tenants have shown up

Obsession
Africa Innovators
Quartz africa
Obsession
Africa Innovators
Quartz africa

The Upper Hill neighborhood in Kenya’s capital Nairobi is set to transform into an upmarket, regional financial hub.

Once a residential district, it is now the headquarters of banks, insurance companies, embassies, government ministries thanks to millions of dollars spent on redevelopment. It is also home to The Pinnacle: a 70-story, 300-meter (984 feet) twin tower that is set to become Africa’s tallest building.

Yet, Upper Hill continues to have the lowest occupancy rates among developments completed in the last two years, says a new report from the commercial property services Broll. Slow pre-let uptake, an oversupply of space, and limited returns have all factored in slowing the momentum. Broll also blames the slowdown on the lack of premier offices, with international standards in the Kenyan market. Office rentals in Westlands, another area with major shopping malls and hotels in Nairobi, also experienced lower occupancy rates in 2016.

The retail market in Kenya has also faced challenges, with tenant demand being lower than the current supply. This is despite the fact that new retail players entered the Kenyan market in 2016, including French hypermarket Carrefour, clothing company LC Waikiki, and food chains like Burger King and Hardees.

The Broll report is the latest addition to the cautionary tales that an oversupply in the Kenyan property market might lead to a sharp drop in prices and returns—and eventually, lead to a burst. Fueled by a rising middle class, Kenya experienced a property boom over the last decade and a half. But much of that development was taking place in the capital, only serving to make the city and its suburbs more congested and expensive to live and operate from. Notwithstanding, the government has assertively supported the boom, even looking to these empty malls and skyscrapers as enablers of investment and employment opportunities.

Yet the better option might be to support economic and infrastructural investment in cities outside Nairobi. As development takes place in smaller towns under a devolved system of power instituted in 2010, multi-million dollar malls are also being completed in counties like Laikipia, Nakuru, and Meru. To encourage investors to follow in these footsteps, the government recently proposed a bill elevating the status of two more towns into cities, and creating many more townships and municipalities.

Sign up for the Quartz Africa Weekly Brief — the most important and interesting news from across the continent, in your inbox.

home our picks popular latest obsessions search