Kenyan Malls See 98% Occupancy While Office Buildings Face Mounting Vacancies

The commercial real estate market in Kenya is experiencing a notable decline, particularly in the office space sector.

This is according to the 2024 Real Estate Survey by the Kenya National Bureau of Statistics. The data reveals that by the end of 2023, a staggering 34.4 percent of all office spaces available for lease remained unoccupied. This is due to significant shifts in demand driven by modern working arrangements. In 2023, office properties made up 63.3 percent of all commercial real estate advertised for leasing. Despite this dominance, interest in these spaces dwindled significantly, as hybrid work models gained traction.

These models, popularized during the Covid-19 pandemic, often result in employees attending the office only two or three days per week. As a consequence, corporations are seeking to reduce their real estate footprints, a sentiment echoed in a 2022 survey by the International Labour Organization (ILO) and the Federation of Kenya Employers (FKE), which indicated that nearly half of the surveyed firms intended to sustain hybrid work models beyond the pandemic.

The real estate market's performance varies across sectors, with office spaces struggling substantially in comparison to other property types. Retail premises accounted for 16.1 percent of leasing advertisements, while malls, industrial and warehousing properties, special purpose properties, and hospitality sectors represented 7.7 percent, 7.2 percent, 2.6 percent, and 1.7 percent, respectively.

Suites or condominiums were the least represented at 0.5 percent. Malls performed exceptionally well, achieving an occupancy of 98.3 percent, followed by hotels at 84.6 percent and industrial/warehousing properties at 81.8 percent. In stark contrast, only 65.6 percent of office spaces found tenants. Financially, the average monthly rent for office buildings was reported at Sh106 per square foot for 2023, although this varied based on specific property types and locations.

Suites/condominiums and special purpose premises exhibited higher rental demands, fetching Sh140 and Sh150 per square foot, respectively. Service charges also differed significantly, with industrial and warehousing properties incurring the highest average monthly service charge of Sh29,047.8, followed by malls and mixed-use properties at Sh15,746.1.
The transition to hybrid work is reshaping the landscape for office real estate investors.

As companies embrace these new working paradigms, the demand for traditional office space is likely to further decline, impacting rental income and prompting a reevaluation of investment strategies within the commercial real estate sector.