Falling prices for commercial office space, a rise in new housing projects in prime areas neighbouring Kampala city and the completion of low-cost housing projects are likely to influence trends in Uganda’s property market in 2015, according to a new report.

The report by Lamudi, an online real estate portal, noted that the excess supply of commercial office space in Kampala’s central business district in recent months is expected to put pressure on average rental rates.

“Subsequent declines in average rent for commercial space could affect major properties located close to the city centre; overall rental incomes will decrease and are likely to discourage future investment in the sector,” industry players warned.

READ: Falling demand takes toll of Kampala property market

The commercial office sector has experienced price wars resulting from cheaper rates offered by new property developers, many of whom have scrapped service charges levied on tenants — a source of money used to pay bills for cleaning and other services incurred by property managers. Service fees have averaged less than three per cent of rental costs charged by leading property agents, industry sources said.

New developers

Prominent commercial buildings have lost tenants to new developers. Real estate experts attribute this to high levels of debt exposure suffered by new developers and emerging signs of political tensions ahead of the 2016 general election that have scared away investors and eroded appetite for prime office space.

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New developers have been forced to discount their rates in order to secure badly needed revenue streams necessary for repaying bank loans and avoiding seizure of assets due to defaulting. Their debt levels are nearly 80 per cent of total project costs, while demand for office space is on the decline.

“Many new property developers are feeling distressed because of high debt exposure and low demand for commercial space. This has forced them to slash their rates in order to book low incomes over the medium term instead of holding onto empty premises,” said Moses Lutalo, a real estate analyst at UAP Properties Uganda Ltd.

“For example, some of these developers are quoting rates as low as $9 per square metre compared with similar space offered by bigger facilities like UAP Business Park located in Nakawa, which charges $14 per square metre. This trend has also led to loss of clients by highly priced residential apartments located in the Kololo area.”

Gerald Paul Kasaato, the acting chief investment officer at Uganda’s National Social Security Fund (NSSF), said that the rising supply of commercial space had led to fierce competition for big clients.

Cheaper offers

“For example, some of our big tenants at Workers House have been lured away by cheaper offers of $9 per square metre without service fees compared with our current rates of $18 per square metre for certain floors. However, the lack of a secondary mortgage market are still constraining overall growth in the real estate industry,” said Mr Kasaato.

Improved roads and increased commercial farming activity in strategic neighbouring areas of Kampala are also likely to spur substantial growth in new housing projects. These areas include Mpigi, Mukono and Wakiso.

Low-cost housing

Recent road repairs have stimulated interest among big property developers eager to build fairly large low-cost housing estates.

“The sale price of land in these areas is more affordable than the land in the CBD and surrounding areas. Property developers are continuing to invest in properties in these areas and the extension of these services is definitely going to make these properties some of the most sought after in the region,” said Shakib Nsubuga, the country manager at Lamudi’s Uganda office.

Industry analysts also anticipate higher demand for land in the Albertine and Karamoja regions in 2015 amid the emerging investments in mining.

“We expect a sharp rise in land transactions in areas around specific economic activities such as those in the oil belt in the West Nile and Karamoja areas, the agricultural zones of Nakasongola and Masindi and trade corridors bordering South Sudan as the government continues to aggressively invest in infrastructure and promote the development of special economic zones,” said Arthur Mukembo, the regional director at real estate firm REMAX Uganda.

Sharp demand

The sharp rise in the demand for low-cost housing and strong uptake of new low cost housing projects are projected to continue in the coming year. Analysts point to an accumulated national housing backlog of 500,000 against a supply of 500-1,000 low-cost housing units expected next year.

Favourable prices for retail clients could equally boost demand for low-cost houses in 2015, they said. Whereas the minimum market price of a decent low cost house was estimated at Ush70 million ($24,961) in the past, new offerings in the market are projected to cost as low as Ush25 million ($8,915) in prime areas neighbouring Kampala, industry findings showed.