Report: Apartments Prices Go Down as Supply Increases

Source: ChimpReport by Sharon Katusime

Owners and property managers of rental apartments in Kampala have had to lower their rent expectations due to an abundance of choice for potential tenants during the past year.

According to a latest report by Knight Frank Uganda, a Property management and consultancy firm, in last 12 months there has been a 8.5% increase in supply of apartment units coming onto the market particularly in the prime residential areas of Kololo, Nakasero and Naguru.

‘Knight Frank registered a 9 percent year-on -year average decline in occupancy for the same suburbs from 81% recorded in the half year of 2018 down to 72% registered in half year 2019,” the report says.

‘The increase in stock has forced some landlords particularly for the newer stock to discount their rents in order to be more competitive, allowing tenants who would have chosen to live in secondary suburbs particularly Muyenga, Mutungo and Ntinda to opt for prime areas,’ the report states.

The report also shows that overall, rental rates have declined by 1.25% on average annually.

“Additionally, we have registered an increase in enquiries for two bed apartment units which expatriates who are single and young couples are showing a preference for. Generally, the variance between asking and achievable rents for apartments in the prime residential sector is widening in response to the increase in supply of private rented accommodation, putting downward pressure on rents,” part of the report says.

Knight Frank also registered a 3% year on year decline in occupancy rates (from 86% recorded in half of 2018 down to 83% as at December 2019) for prime office space (Grade A and B+).

This is mainly on account of a percent decline in demand by large space occupiers (greater than 500 square metres) particularly multi-nationals and large corporates as well as the addition of approximately 18,000 sq. mts. of prime office space during the first half of 2019, with the market absorbing only 20 pc of this space during H2 2019.

As a result, Knight Frank has observed a four percent increase in leasing activity for smaller office occupiers (less than 200 sq. mts.) particularly start-ups, who prefer flexible office terms and solutions (including shared and serviced offices) which best suit their requirements.

The report states: ‘The biggest percentage of office space was leased to government funded projects in the road sector, start-ups particularly ICT and insurance firms accounting for 40 pc, 20 pc and 15 pc of the leased space respectively. With regards to rents, the increasing void rates in the leased office space sector has led to softer lease terms and conditions being achieved by tenants during lease renewals. In light of this, prime rents have fallen by approximately 10 pc.’

For the industrial segment, H2 2019 has registered slow leasing activity compared to H2 2018 with a 50 pc year on year decline in take up of space from 26,000 sq. mts. to approx. 13,000 sq. mts. in H2 2019.

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