The empty halls of commercial real estate

Natalie Campbell-Rodriques

The whispers about the commercial real estate market in Kigali are becoming louder with each passing day. The scoffing at prices and the general comments are not positive.
Across the city, whether it be in Nyarugenge, Kacyiru, Kimihurura or elsewhere, there are several buildings with a large number of square metres for rent.
Some of these buildings have been fully or partially empty for over a year with little hope of an upward trend in the near future.
A week hardly goes by when someone does not seek my opinion on the state of affairs with these empty buildings. I will repeat here how I think the matter is to be addressed.
Firstly, this is not an issue which must be placed at the foot of the Government to be solved unless it is for them to ask that banks pause all loans for commercial development for a set period of time.
Outside of this moratorium, what else can the Government truly do? They have already called for all commercial activities to seize in residential areas which provided a well-needed bump for some commercial properties.
There has to be a time when the market takes control of itself as much as possible.
A more practical approach rests with the banks and developers.

It is understandable when a land owner wants to move forward and develop their land according to the tenets of the Kigali Master Plan
At this point, the owner is left with a choice of selling the land, moving forward with the development or leaving the land vacant for an additional period of time.
With the current pace of progress in the city, the additional wait time may not be as long as it were 10 years ago.
Land is one of the harder real estate products to sell at this time but it is possible. If the selected choice is to build then the impetus is on developers to build what the market can use.
There are enough buildings priced between $18 and $25 per square metres; we see them sitting looking lonely in many instances. What I am suggesting requires a mindset shift. This shift may be a hard pill to swallow but it is one that needs to be taken if the aim is to make a return on investment.
It cannot be the case where a developer puts resources into the building of commercial space and in doing so has an earning figure in mind with zero consideration for what is actually possible.
Even if this strategy worked five or ten years ago, it will not work in 2018 and beyond. As mentioned earlier, the market is flooded with space priced on the higher end of the spectrum.
Is it not possible to build commercial space which is priced between $10 and $12 per square metre? For buildings which have sat empty for nearly a year or more, what would be lost in lowering the prices to the level of the marketplace?
Empty space is quite expensive in real terms. These empty buildings still have maintenance costs but with no one except the developer to cover these costs.
It cannot be argued that a lowering of prices will guarantee full occupancy given that the supply far outweighs the demand for commercial space in Kigali.
However, a lower price could open doors for many an empty building with a savvy landlord who wants to recoup all or at least the greater part of her investment in the short to medium term.
Banks need to also be much stricter with how they lend for real estate investment. What of the use of external feasibility studies? The emphasis needs to be on being strategic and not emotional.
Because someone has the land, the initial investment and what seems like a good idea does not mean there is a market demand for the product.
As I have noted in previous articles, the idea of building is great, but that philosophy does not mean that due diligence must be skirted. Some basic questions which developers need to ask themselves and which banks need to ensure are answered include:
●      What is the ratio of demand versus supply for commercial real estate?
●      What is the average price range per square metre in the marketplace at the moment?
●      Do buildings with a lower price have a greater occupancy rate?
●      What is the comparative advantage of the proposed development relative to the empty buildings currently in existence?
These four questions provide a good start for both banks and developers. Let us no longer ignore due diligence prior to investing in commercial real estate in Kigali
NB. For the purposes of this article the term commercial refers both to retail and office space.
Twitter: @NatsCR
The views expressed in this article are of the authors.