To build or continue renting office space?

The Uganda Revenue Authority (URA) Tower that houses the tax body’s headquarters in Kampala. FILE/PHOTO

Two weeks ago, staff were caught off guard when a heavy downpour soon found its way into the new Uganda Revenue Authority (URA) Tower.

While the issue has been pinned down to faults in the design phase, it is not clear how the remedy will be administered.

In a statement, the tax body said; “A more robust solution to protect the louvres from such exceptional storms is being put in place while at the same time maintaining the original design features of the building to remain energy efficient and environmentally friendly.”

Social media chatter crucified the tax man for erecting a twenty two floor building that cost the tax payers Shs139b, and in less than a year, was riddled with faults.

Similarly, some companies have taken to constructing their own buildings such as Centenary Bank’s Mapeera building and Victoria Equipment Limited in industrial area, among others.

About Shs6b was spent to construct Victoria Equipment Limited’s new building in industrial area.
Various government buildings including Insurance Regulatory Authority, Electricity Regulatory Authority, Uganda Investment Authority, Public Procurement and Disposal of Public Assets Authority (PPDA) among others, are under construction slated for completion between by 2021.

The move, according to real estate management company, Knight Frank, is feared to create more vacant office space.

“The current trend of corporate tenants and government parastatals moving into their own buildings will have an adverse effect on office space, by increasing the supply of vacant stock on the market in the short to midterm,” a report released by Knight Frank in second half of 2018 read in part.

In the first six months of 2019, Knight Frank saw vacancies from grade A and B+ buildings propelled by exit of government agencies and a few multinational companies that moved into owner occupied built to suit premises.

To build or rent?
Ownership is often viewed as a fortune. But should all companies that can afford set up their own buildings?

Admittedly, rent is an expensive venture. URA, in setting up its tower, not only looked at benefits of convergence but also sought to save Shs7.4b annually formerly spent in rent fees.

A company can in addition to saving money spent on rent, let out part of the building to raise income. For Mr Jonathan Gombya, a property and facilities manager and certified project manager, the decision to rent or own a building is hinged on the companies’ need for space.

Extensive need for space, he says warrants a decision to set up a building.

“What are the company’s space requirements? If you need to occupy 1000square metres of space for the next ten years, it does not make sense putting up your own building. In such a scenario, it makes more economic sense renting than owning space,” he explained.

“However, if your space requirements are high and likely to get higher as years go by, it may be cost saving to put up your own space,” Mr Gombya explained.

Justification for a company to erect its own building, he said should not be the need to save on short term basis but rather long term. This is explained by the nature of real estate which is highly capital intensive but with low yield returns.

Government bodies have pegged their need for permanent office space on the desire to create a one-stop service centre for the public thus boosting efficiency.

Build for investment not occupancy
Mr Richard Byarugaba, managing director, National Social Security Fund (NSSF) says prior to putting up a structure, one ought to determine whether the building is for prestige, occupancy or investment.

He argues that a company should not put up a structure for occupancy but rather as an investment especially in the face of advanced technology.

With technology, the future is painted with work spaces dominated by machinery and less employees. So vast office space for occupancy would not be a sound business decision.

“With all the technology that is coming, most institutions are not in position to occupy all their properties. Technology is taking over and there are fewer people working for institutions.
It depends on what your business is about. I would suggest that you build if it is an investment asset and I suggest that you should rent if you just want to occupy,” he advises.

With vast experience from maintenance works done at Workers’ House, Mr Byarugaba says maintenance is key when you construct a building.

Ordinarily, he says a building will need extensive maintenance works after 10 years which include water supply system, air conditioning and elevators among others.

According to the pension’s boss, proper maintenance of a building is essential if it is an investment.

“Aside from rent that is collected from buildings, when you own a building, there is capital gain. If you build a property today and revalue it tomorrow, the upside on the balance sheet is capital gain,” he says.

But you need to maintain this property in order to have good capital gains because “if you do not, the value will go down; that will also mean you will get less rent than you would have.”

Workers House
Constructed about 20 years back, Workers House needs an overhaul and a lot of capital expenditure injected into it.

After construction, the projected footfall that Workers House was to have was 1,000 people a day. Currently, Mr Byarugaba says over 2,500 people move through the building on a daily basis.

He says the building needs to be adjusted to fit to the changed times including elevators, electricity network and air-conditioning.

“The way the lifts work, you can spend a lot of time waiting for them. We also had a centralised air-conditioning which broke down and needed to be replaced. But it cost a lot of money. The other thing is the electricity,” he reveals.

Weighing costs
It is one thing to heavily invest in a building and expect to save. It is another to keep it functional.

While buildings are viewed as saving plans, inability to maintain them could become a company’s nightmare.

Cost of maintenance
Millions of shillings can be spent in periodic repairs, which overrides the saving goal since more is incurred in keeping the building functional.

Mr Moses Atwiine, physical planner at Kampala City Council Authority, says government does not have a specific timeline for which maintenance works on commercial buildings should be done.
Maintenance is occasioned by conditionality of the building.

“Some buildings are constructed with long lasting authentic materials so they can take 10 to 20 years before demanding for a new coat of paint. Those done with fake materials could wear out every three to five years,” he said.

Maintenance is an encompassing of different factors, such as floor and wall cleaning, air-conditioning, electrical systems, windows and doors generators, elevators, fire detection and fighting systems.

Others costs include security, insurance and utilities among others.
According to Mr Gombya, it can be divided into preventive and reactive. Preventive, he says, is pre-planned, meaning it can be done periodically while reactive is a response repair to an unexpected breakdown, for instance a door.

On the average cost of maintaining a building, he says figures vary depending on multiple determinants such as size of the building, breakdown or maintenance repairs required and willingness of the landlord to spend.

“From the first day of entering the building, things can start failing or breaking down. The only difference is the frequency at which they break down. Expenditure on maintenance depends on size of the building, issues arising in terms of magnitude, a person repairing a door will not incur the same as one fighting a roof leakage,” he says.

Maintenance tips
According to Mr Gombya, it is essential to prevent than correct. Avoid a breakdown by using quality material or replacing something before it breaks down.

Never let maintenance issues accumulate over time, he advises. Handle them as they come.

Employ skilled people to do the repairs.

“Most landlords think anyone can manage a building, so they end up recruiting their relatives with zero training/ knowledge on property and facilities management. The results are always regrettable,” he says.