Prime
Office spaces are popping up, but where are the tenants?
A building under construction in Kampala. Several companies are looking for office space. PHOTO / ISAAC KASAMANI
What you need to know:
Businesses are getting smarter with their budgets, opting for slightly lower-grade offices that still tick the right boxes on location and amenities.
Kampala has become a veritable goldmine for office space in its prime, high-demand areas. Landlords in these sought-after zones are basking in the glow of abnormally high revenues, mainly for their strategic location and the influx of businesses eager to establish a foothold in the city.
However, there is an intriguing shift. A growing number of office space owners in other locations of the city are witnessing a decline in demand, as businesses begin to reconsider their priorities, new data from Knight Frank, a real estate firm, shows.
Instead of splashing out on sky-high rents in the city centre, a notable section of companies is turning its gaze towards more affordable, yet still strategic, areas outside the central business district (CBD), an emerging trend that is realigning the commercial property market, as the search for value begins to outweigh the allure of prestige addresses.
New real estate data, especially that captured in the second half of 2024, shows that Grade A offices maintained their rental rates at an average of $16.5 (Shs60,709) per square meter per month, while Grade AB spaces saw a seven percent price hike, reaching $15 (Shs55,000) per square meter.
In simple terms, Grade A is the "premium" office space, while Grade AB is a "high-quality but more affordable" option.
The reason? “Businesses are getting smarter with their budgets, opting for slightly lower-grade offices that still tick the right boxes on location and amenities,” the real estate firm notes.
That said, some landlords in Kololo and Nakasero—the city’s priciest office real estate—are cashing in on their premium addresses, pulling in net rents of up to $18 per square meter for newly built spaces.
These buildings are not just about location; they come with sleek modern designs, high-end finishes, and, perhaps most importantly, ample parking—a golden ticket in Kampala’s congested commercial districts.
While demand remains solid, the question is: how long before shifting tenant preferences, economic pressures, and upcoming office supply disrupt the balance?
But this strong demand did not come alone. There was a slight dip in occupancy overall, with vacancy rates creeping up by 1 percent compared to the year prior.
The culprits? Business downsizing, the wrap-up of Non-Governmental Organisations (NGO) and government-funded projects, a shift to cheaper office spaces, and an increasing preference for suburban locations over the CBD.
Some high-end office segments also hit a saturation point, leaving landlords with more empty desks than they would like.
But landlords are not flinching. They are sticking to annual rent hikes of 3 percent to 5 percent, as permitted by the Landlord and Tenant Act, ensuring that leasing costs continue edging up despite market shifts.
Most lease agreements are locking tenants in for three to five years, signalling a relatively stable tenant base—at least among those who can keep up with the rents, Knight Frank says.
Declining demand for space in CBD
The CBD is losing its grip. The second half of 2024 saw a surge in demand for office spaces outside the city centres, especially from start-ups, service providers, and financial firms, Knight Frank notes in its research notes.
Their reasoning? Less traffic, fewer parking headaches, and an escape from the noise and congestion that plague the downtown core.
More businesses now prefer to set up shop where their clients live and work, making decentralised office locations an increasingly attractive alternative.
And, there is a new trend –Kampala’s office landscape is undergoing a quiet revolution—homes are turning into boardrooms.
The demand for residential stand-alone properties in Bukoto, Ntinda, Naguru, and nearby areas is soaring as businesses opt for privacy, ample parking, and proximity to residential hubs.
These suburban spaces are emerging as serious contenders against traditional office buildings, offering a quieter, more flexible alternative.
Yet, just as businesses are downsizing and decentralising, a wave of new office buildings is set to flood the market in 2025.
Major projects such as the Chint building, Uganda Development Bank (UDB) building, Ministry of Finance building, and the Inspectorate of Government building will add significant square footage, pushing vacancy rates higher—especially in the latter half of the year.
Compounding the issue, the government’s rationalisation policy is reshaping demand. As ministries and agencies are either merged, downsized, or scrapped altogether, the ripple effect will see even more office spaces freed up, further tilting the balance toward oversupply.
Scramble for compact offices
Meanwhile, compact offices (under 200 sqm) remain hot property, as businesses lean into cost-effective, flexible workspaces in response to changing operational needs.
The demand for compact, cost-effective spaces is on the rise, fuelled by the growing adoption of hybrid work models and shifting operational needs.
One deal breaker remains: parking. Tenants are prioritising office buildings with sufficient parking, making it a key factor in occupancy rates.
Turbulence
That is where Kampala’s office market braces for turbulence.
With the government's rationalisation policy consolidating ministries and agencies, a wave of previously occupied office spaces will soon hit the market, intensifying the looming oversupply crisis.
Meanwhile, the pipeline of over 100,000 square meters of new office space—set to enter the market between the first half and second half of 2025—is facing delays due to financing struggles and regulatory bottlenecks.
But once these projects are completed, they will outpace demand, pushing vacancy rates higher and putting downward pressure on rental prices.
For landlords, it is a waiting game. For tenants, it is a buyer’s market in the making.
