The retail property sector in Kampala experienced a slowdown in leasing activity as investor confidence was dampened by the sluggishness in the domestic economy as well as challenges of Nakumatt, a report by Knight Frank indicates.
The market report for the first six months of 2017 states that these challenges along with the negative impact of the conflict in South Sudan resulted in substantial financial liabilities to banks, suppliers and landlords.
“In the first half of 2017, the retail sector has experienced a slowdown in leasing activity due to the negative outlook from local media which in turn generated a lack of consumer and business confidence in this sector,” read the report released recently.
The market update covers the performance of the Residential, Office, Retail and Valuation sectors.
Major among the downside highlights of the retail sector was the closure in Uganda of Nakumatt, East Africa’s largest retailer by size, number of stores and area occupied. This dampened the confidence in the sector by other retailers.
Nakumatt’s suppliers had stopped supplying them towards the end of 2016, which led to further losses for the group, increased debts and loss of market share due to empty shelves from lack of stock in the stores.
“The status of Nakumatt and its possible demise is of great concern to the East African market as it will have repercussions on financial institutions, FMCG manufacturers and distributors, property investors and most importantly and unfortunately, job losses,” Knight Frank’s report further states.
With regards to the development pipeline, the retail sector has been boosted by the formal announcement of The Arena Mall, a 14,000m² conveniences, fashion and leisure mall to be built in Nsambya. The development by Chestnut Uganda limited will open for trade in the first quarter of 2019.
In the residential sector, Knight Frank reports an increase in the supply of prime residential stock for rent on the market over the past 12 months. This supply is in the prime suburbs of Kololo, Nakasero Bugolobi, and Naguru.
Kololo and Nakasero are seeing increasing redevelopment of old residential plots of between 0.50 – 1.00 acres, in line with the zoning regulations of these locations. Swimming pools, gyms, and children’s play areas have become standard facilities provided at the new residential developments.
“There has been a noticeable increase in take up of residential apartments over the past 6 months, however this is not purely new demand, but mainly from tenants whose tenancy agreements have come to an end and are moving to newer and more modern accommodation, at nearly the same or just slightly higher rentals” said Managing Director, Judy Rugasira Kyanda.
The report cites that sales transactions registered are still not at the pace they were at 2 – 3 years ago. While there has been a rise in the number of enquiries for houses in the Ush 350 milion to Ush 650 million price range, very few potential purchasers follow through to conclusion after the mortgage application stage. This is mainly due to unaffordable interest rates when they go through with the loan application process.
The report cites that the comparative advantages for properties which are attracting tenants and or maintaining high occupancy rates are intelligent buildings which are energy efficient with adequate parking space, usually out of the core Central Business District areas, i.e North East of Kampala Road towards Yusuf Lule Road, Kololo and Lugogo By Pass.
Regarding residetial property in Kampala, Knight Frank findings point to an increase in take up of residential apartments over the past 6 months, but adds: “this is not purely new demand, but mainly from tenants whose tenancy agreements have come to an end and are moving to newer and more modern accommodation, at nearly the same or just slightly higher rentals”.
“This is also as a result of rental budget cuts by many organisatons, which has compelled their expatriate staff to move out of standalone houses into apartments where overheads are perceived to be lower,” the report notes.
Among areas where demand for residential accommodation has risen is; suburbs of Naguru, Mbuya and Bugolobi majorly driven by private organisatons, corporate companies, and oil and gas consultancies and other related services.
But like the retail sector, actual sales transactions in the residential property have declined compared to 2 to 3 years ago, due to financial constraints by potential buyers.
With the anticipated oil production preparatory activities taking shape and conclusion of the Front End Engineering Design (FEED) of the oil refinery, the commercial office space outlook for the next three years looks optimistic against a backdrop of renewed interest by the Oil and Gas companies. This is likely to positively impact the demand for prime office space in the medium to long term.
As regards Valuations, Knight Frank Uganda registered a 24% increment in valuations instructions in H1 2017 compared to the same period in 2016. This is partly attributed to a 27.5% increase in bank lending activity year on year in H1 2017 due to continued reduction of the Central Bank Rate which has forced financial institutions to reduce their lending rates.