Prime office space suffers lower uptake on oil firm shocks

Kenya's tough operating environment has negatively impacted uptake of office space. PHOTO | BD GRAPHIC 

By OTIATO GUGUYU, dotiato@nationmedia.com

In Summary

• Decline in absorption of prime office space in the second half of 2015 due to external economic shocks that have hit international firms operating in the country.

The decision by oil companies to pull out of Kenya's tough operating environment coupled with the end of government commission tenures have dampened office space uptake in the real estate sector.

According to the latest market update by property management firm Knight Frank, the 5 per cent decline in absorption of prime office space in the second half of 2015 compared to the first is due to external economic shocks that have hit international firms operating in the country.

“A number of multinationals, particularly in the oil industry, expressed intention to downsize operations, and government agencies such as the Constitutional Commissions – which had been major takers of office space in the recent past – no longer require much space,” the report read.

Some oil exploration companies have even pulled out of Kenyan market after crude oil - which was trading at $100 in 2012 - declined sharply to below $50 over the last year.

Tower Resources and Premier Oil, for instance, announced plans to exit a block in northern Kenya after drilling of the first well failed to show any crude deposits.

Oil and gas services logistics firm Atlas Development also sacked close to 800 staff and shut down its loss-making Kenya unit on bad debts amid low oil prices.

READ: Moody’s sees Kenya, Uganda oil plans stall on low prices of oil

The sector has also taken a hit from State agencies - which are occupy a substantial chunk of grade A office space in the capital - reaching the end of their terms.

For instance, the term of the Constitution Implementation Commission (CIC) who occupy Parklands Plaza in Westlands, Nairobi is coming to an end within the year.

READ: Nyachae team set to wind up with hefty send-off package

Although Senate is trying to extend the term of the Transitional Authority (TA) who occupy Extelecoms House its term has expired.

READ: Delays by Transition Authority frustrating devolution, says CIC

The sector could also take a hit from the State's move to devolve certain parastatals to the county level.

The government-sponsored Entities Bill which is currently before Cabinet also wants parastatals downsized from 300 to 200 to cut on public expenditure.

However, headline rents for prime offices (the most expensive) remained stable in the period at US$21 per square metre per month, and were above asking rents for the overall market.