Landlords’ earning drop as tenants seek cheaper options

Report: The H2 2020 dashboards examined the residential and office market performance in 26 African cities.

Rental properties in Africa continue to post lower earnings as tenants sought cheaper options due to shrinking revenue occasioned by the Covid-19 pandemic.

Knight Frank’s Africa Residential and Office Dashboards shows residential rents declined by 19 per cent while office rent dropped 11 per cent on average in the year to December 2020.

This saw yields for both residential and office space owners drop by seven and nine per cent respectively.

Te report provides occupiers, landlords, and investors with regular analysis of the rental performance and trends of prime residential and office markets across Africa.

The 2020 second half dashboards examined the residential and office market performance in 26 African cities.

In Nairobi, prime residential rent dropped by 24 per cent compared to the corresponding half the previous year which was way above the continental drop.

Even so, the performance was much better compared to other large African economies with rent in Lagos, Nigeria dropping by a massive 71 per cent. In South Africa, rent dropped by 31 per cent in Johannesburg and 30 per cent in Cape Town.

However, South Africa recorded a marked improvement in prime rents compared to the 2020 first half as a result of the South African Rand appreciating against the United States dollar and easing of lockdown restrictions.

Dar es Salaam, Tanzania and Tunis, Tunisia recorded among the highest declines in prime residential rents by 33 per cent and 34 per cent on average in 2020 compared to 2019.

This was attributed to the flight by expatriates and the reduction in household disposable income as a result of the pandemic.

Some cities recorded an increase in prime residential rental prices with Harare topping at 50 per cent. Addis Ababa, Douala and Gaborone recorded a 14, 10 and eight per cent increase respectively.

The drop in prime residential sale prices in Nairobi eased during the period under review by 10 basis points due to an increase in concessions from developers and sellers who were flexible and willing to negotiate lower prices with potential buyers.

According to the report, sale prices decreased by 3.9 per cent compared to four per cent in 2019.

Tilda Mwai, Knight Frank researcher for Africa is optimistic of a gradual rebound in prime residential sales in a majority of the markets which is expected to continue into 2021.

“Despite an overall slowdown in market activity due to the lockdowns imposed throughout the year, we have witnessed a gradual rebound in both rent and sales this financial year,” Mwai said.

The dashboard also highlights that demand for quality living spaces is expected to increase especially in Kampala owing to remote working and the impact of the pandemic.

Further in Nigeria, affordable housing demand is expected to persist and as a result, increased government intervention have been observed in Lagos.

A similar trend was witnessed in the office space, with prime office rents in Nairobi declining by 13 per cent during the period under review compared to the previous half.

Rent per square metre of office space in Kenya’s capital dropped to $12 about (Sh1300) with average occupancy rates across commercial offices recorded at approximately 72 per cent.

Office space investors in Nairobi earned lower returns on investment of eight per cent compared to 11 per cent in the previous half.

However, absorption of Grade A and B office space increased by 13 per cent in the second half of 2020 compared to the first half of 2020.

This was attributed to the easing of lockdown measures and the gradual re-opening of businesses allowing multi-national and local occupiers to proceed with key business decisions and finalise transactions.

”This trend is expected to continue in the first half of 2021 with the expected rebound of the economy and Covid-19 vaccine roll-out,” Knight Frank says in the report. 

Office space was much costlier in Nigeria, with a square metre going for $50 about (Sh6,000) earning property owners a lowered yield of nine per cent.

Grade A office landlords continued to issue rent concessions and renegotiate lease terms with tenants due to the current economic downturn.

”Whilst vacancy levels are expected to remain high for prime office spaces, there has been an increased demand for smaller co-working spaces due to most of the occupiers downsizing their companies,” the report says.

The majority of the markets remained tenant favoured with occupier activity in the period under review characterized by office relocations in a bid to consolidate space and acquisitions in a flight to quality as occupiers sought to leverage on the softer market conditions.

Demand for smaller fitted-out office spaces (<80 – 100 sq m) remained rife as flexible working patterns became the ‘new normal.

”We anticipate that the office market will remain subdued over the course of 2021 with earlier signs of recovery only expected in the last quarter of the year,” Mwai said.



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