Increased supply of properties, coupled with changing consumer preferences and statutory changes in the warehousing regime have had a knockdown effect on demand in Uganda’s property markets.
Property owners have had to adjust pricing downwards while others have opted to play a “wait-and-see” game, the Knight Frank Uganda Kampala Market Update H2 2019.
The report is based on a survey conducted in December by Knight Frank Uganda, a leading independent real estate consultancy that offers property valuation and consultancy; residential and commercial agency services as well as property management.
According to the report, the last 12 months have seen an 8.5% year on year increase in supply of apartment units onto the market particularly in the prime residential areas of Kololo, Nakasero and Naguru. Knight Frank said there was a 9% year on year average decline in occupancy for the same suburbs from 81% recorded in H2 2018 down to 72% that was registered in H2 2019.
“The increase in stock has forced some landlords particularly for the newer stock to discount their rents in order to be more competitive, allowing tenants who would have chosen to live in secondary suburbs particularly Muyenga, Mutungo and Ntinda to opt for prime areas. Overall rental rates have declined by 1.25% on average annually,” observes Knight Frank.
However, it appears the miniscule 1.25% reduction in rental rates has not succeeded in impacting on the rental yields yet, with Knight Frank reporting that “gross rental yields have remained stable ranging from 7% – 9%.” The report also adds that 2-bedroom apartments continue to attract the highest demand especially from single and young couple expatriates.
In the build-to-sell category, Knight Frank noted that both sellers and buyers had adopted a “wait and see” strategy, hoping for easing of macro-economic conditions, hence market stagnation in this category.
According to the report, on average, a 2 bedroom apartment in Kampala’s prime locations rented for USD1,750 per month and sold for USD225,000 while 3-bedroom apartments went for USD2,750 a month in rent and USD325,000 for sale. A 4-5 bedroom bungalow seated on up to 0.5 acres rented for USD 5,000 and sold for averagely USD1,000,000.
Office, industrial and retail
Knight Frank reported a 3% year on year decline in occupancy rates (from 86% recorded in H2 2018 down to 83% as at December 2019) for prime office space (Grade A and B+), a phenomenon blamed on a 6% decline in demand by large space occupiers of above 500 sqm, especially multi-nationals and large corporates. An additional 18,000 sqm of prime office space offloaded onto the market in the first half of 2019 and only 20% absorbed further distorted the market.
There was however an observed “4% increase in leasing activity for smaller office occupiers (<200sqm) particularly start-ups, who prefer flexible office terms and solutions (including shared and serviced offices) which best suit their requirements.”
Government funded projects in the road sector as well as start-ups particularly ICT and insurance firms accounted for 40%, 20% and 15% of the leased office space respectively.
How Ecobank is Betting on Inclusive, Tech-Powered Learning in UgandaThe industrial category registered, perhaps the biggest slump, with Knight Frank reporting a 50% year-on-year decline in take up of space from 26,000 sqm in H2 2018 to approximately 13,000 sqm in H2 2019. About 80% of the leasing activity was registered in the traditional industrial areas of 1st – 7th Street, Ntinda, Banda and Luzira that are closer to the CBD and was driven by e-commerce particularly Jumia, furniture stores, logistics, FMCGs, and auto-mobile companies.
According to Knight Frank, 75% of the market had preference for space ranging from 100-500 sqm with the biggest determinants of take-up being; accessibility, eaves heights, ample parking (large yards), additional office space on the warehousing facility as well as high quality specifications with regards to floor loading requirements.
Landlords had to cut rent for older stock of warehouse space from an average rate of $5.50 per sqm registered during H2 2018 to $4.75 per sqm during H2 2019. However, rents for newly built or refurbished industrial space remained stable at an average rate of $5.75 per sqm. According to the report one of the reasons for depressed demand was the Kampala Industrial Business Park (KIBP) which, Knight Frank says, remains a “preferred location for owner occupiers and big space users looking to set up purpose built warehouses for owner occupation as opposed to renting.”
The report noted that a statutory order by Uganda Revenue Authority (URA) limiting warehousing on sugar, rice, wines and spirits, building materials, motor vehicle tyres and tubes, motor vehicles older than 14 years, all garments and footwear would impact heavily on the warehousing and bonded warehousing sector.
Knight Frank reported refreshed activity at Metroplex, Acacia and Village Malls. It also reported that The Arena Mall in Nsambya was due for opening in the second half of 2020 and would be anchored by Shoprite, Century Cinemax, MRP, Aristoc and numerous other brands.
Outlook for H1 2020
Knight Frank issued a cautious forecast to developers, saying that “achievable residential rents are expected to drop further as landlords of recently completed apartment blocks compete for the limited pool of corporate and expatriate tenants who can afford prime residential properties.
It also said that the total volume of office space in the pipeline is increasing, “hence prime office rents are expected to decline owing to increasing supply.
Knight Frank also said that there was uncertainty associated with the Landlord-Tenant Bill and this continued to “negatively affect new developments and leasing activity across the entire real estate market, as many international investors are still adapting a “wait and see approach” and monitoring the real estate market.”
“We anticipate the same trend to be carried forward in H1 2020 with further reduction in the intensity of leasing activity and pipeline development completions in the entire real estate sector if the bill is signed into law in its current state,” observed Knight Frank.
