Kampala- A report by Knight Frank has revealed that rent for three bedroom apartments has reduced due to increasing supply.
However, this is despite reports of an existing housing deficit that Uganda has been grappling with in over a decade now.
According to the report, there is a surplus in supply of three bedroom apartments, which has culminated into a reduction in rent prices.
“Knight Frank Research registered a 5 per cent decline in average rents for three-bedroom apartments from $2,900 (Shs10.6m) recorded in [first half of] 2018, down to $2,750 (Shs10.1m) in [first half of] 2019,” the report reads in part, attributing the fall to supply, which has outstripped demand.
However, an increase in expatriate accommodation for singles and couples, for two bedroom units influenced a 7 per cent increase in rent prices from an average of $2,100 (Shs7.7m) registered in first half of 2018 to $2,250(Shs8.2m) in first half of 2019.
Occupancy rates in Kampala office market experienced a 2 per cent growth attributable to grade B+ space, on the premise of a “soft” market, enabling customers to drive harder bargains for lower rental rates alongside good location, accessibility and ample parking.
However, addition of close to 18,000 square metres of grade A lettable space is a concern, especially for the occupancy rates in the second half of the year if not consumed by supply.
“The addition of approximately 18,000 square metres of Grade A lettable space in first half of 2019 is expected to have a negative impact on occupancy rates for Grade A space in the second half of 2019 if existing supply is not [matched with] demand,” Knight Frank noted.
The situation was exacerbated by an increase in grade A and B+ spaces in the second half of 2019 propelled by vacating government agencies and shift of multinationals into owner-occupied built to suit premises.
The surge in lettable space has distorted the market, essentially allowing customers to further bargain leading to a 5 per cent -10 per cent decrease in achievable rents.
About 11,000 square metres of office space, Knight Frank said in the report, was leased during the period with legal services and logistics each accounting for 20 per cent, tour and travel and insurance firms each equally took up 12 per cent.
A busy retail market
The retail market evidenced a busy half year with the redevelopment of Village Mall Bugolobi and Naalya Metroplex, following their acquisition by Gateway Delta, a Mauritius firm.
Shoprite, which made its entrance into Village Mall saw an average weekly footfall increase by 85 per cent during the opening week compared to the same period last year.
Knight Frank managed retail portfolio, the report also highlighted, registered an average of 7 per cent year-on-year increase in occupancy from 80 per cent recorded in first half 2018 to 87 per cent recorded in first half of 2019.
This the report notes, was mainly driven by an increase in enquiries for space, majority of which are coming from international based retailers specifically in the fashion sector.
Suburb retail spaces
There is also a continued transitioning from the Central Business District to suburbia from both retailers and consumers.
Outlook in the real estate sector
Knight Frank anticipates a 3 per cent -5 per cent reduction in occupancy rates for Grade A office space due to the addition of lettable space and 2 per cent reduction in residential rents for apartments, particularly 3-bedroom units as supply continues to outstrip demand in the prime residential suburbs.
Demand for co-working space is expected to pick up in the second half based on an increase in enquiries recorded for serviced-offices during the first half predominantly from small and medium startup firms.
However, the recently passed Landlord and Tenant Bill in its current form, if assented to by the president, the property manager forecasts reduction in the intensity of leasing activity and pipeline development completions in the real estate sector.