Report: Oversupply and remote working to hurt demand for office spaces

The Architectural Association of Kenya (AAK) has projected a negative outlook in the commercial office segment with unlikely recovery at least in 2021.

AAK blames oversupply and the work from home model public and private companies have adopted since the outbreak of coronavirus pandemic in Kenya 16 months ago.

“In 2021, we expect a continued subdued performance in office sector attributable to the existing oversupply of 6.3 million square feet as of 2020, the reduced demand of commercial office space as firms downsize and adopt the work from home initiative and reduced rates as property managers offer discounts and concessions to retain and attract clients,” said AAK.

According to the association, the commercial segment of the real estate sector will continue to see low construction of new office spaces and a sharp rise in the conversion of older office spaces-where financially feasible.

“The same implies that green shoots are likely to emerge from a supply perspective in the near future but strong growth demand but just be the key to helping the sector regenerate,” said AAK.

The Status of Built Environment Report for half year ending June further projects the average rental yield in the commercial office sector to decline to 6.8% this year from 7% in 2020, with the average occupancy rates expected to decline by 2.7 percentage points from 77.7% to 75%.

While work from home model is expected to remain until a sizable number of the population is vaccinated, some professionals are already backing the model to stay even in a post pandemic era a factor that could see dim investments in office spaces.

Remote working

John, not is real name, a public relations professional who has been working from home for at least 10 months says the model has had it fair share of goodness.

“Since I ventured out, I have been able to take in more clients both on project and retainer basis which helped me whether adverse impact of the pandemic. A key differentiator is that you save a lot of time that you would have rather spent on traffic to work or physical meetings, to complete and take in new assignments. This has in turn translated into more efficiency and productivity in terms of work delivery,”

While American banker Jamie Dimon, the Chief Executive Officer of JP Morgan Chase-one of the largest banks in the world-has publicly backed the idea of employees returning to work similar to pre-covid period, in Kenya that might take a while given that only 2% of the adult population is fully vaccinated.

For John, the remote working has also meant more time with family.

“I have also gained quite some experience balancing out official work, some housework and shared child-care (new-born) which is equally rewarding and motivating one to be more productive. You realise how much more time you have bonding with family as a commercial break.”

While productivity of workers as a result of remote working has been questioned, John is of a different opinion.

He added, “the pandemic has shaped how we view the future of work. It fact it has ushered us into the future of work where focus changes from clocking into the office and being present for 8 hours to promoting productivity. At home I have been working productively for close to 6 hours compared to say four active hours in the office.”

Retail sector

Though the sector continues to witness steady growth as result of rapid expansion by new players in the market, AAK forecasts a positive outlook.

According to AAK, growth could ease by close of the year where rents, occupancy rates and yields are projected to decline to 16%, 71% and 6.9% respectively.

“This is attributed to the existing oversupply of space estimated at 2 million square feet in the Kenya retail market and 3.1 million square feet in the Nairobi Metropolitan Area and a possible reduced demand for physical retail space owing to the gradual but steady shift towards e-commerce and the tough economic environment brought about by the COVID-19.”

  

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