Kigali developers panic as supply for rental space tops demand

The huge supply of rental space outstrips demand. Coupled with high rents, this has sent chills down the spines of investors who took loans to develop the properties.

Buildings alongside KN3 Avenue in Kigali City centre. Kigali has many unutilised rental spaces. PHOTO | CYRIL NDEGEYA 

BY Moses Gahigi

IN SUMMARY

  • The huge supply of rental space outstrips demand.
  • Coupled with high rents, this has sent chills down the spines of investors who took loans to develop the properties.
  • Developers in the CBD are also facing pressure from high quality shopping and office complexes coming up in the suburbs, like Kigali Heights and Umuyenzi Plaza, which have provided customers with more choices.

Kigali seems to have an over supply of commercial, retail and office space with developers now fearing possible losses and difficulties in loan repayment similar to what has happened to medium-sized hotel owners.

Supply is mainly being driven by the Kigali City Master Plan, which prescribes the types of buildings developers can erect in particular areas of the city.

Although the quality of the new buildings is expected to generate fresh demand, developers must survive the intervening period between the launch and the growth of a dynamic market.

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More than 20,000 square metres of floor space has come on to the market this year.

On the upside, increased availability of quality space is expected to attract international brands to the city, but the limited number of takers means rents will remain high as developers try to match their earnings to their obligations to lenders.

Last year, more than 100 medium hotels were put up for auction after they failed to repay bank loans, as demand for hotel beds trailed supply.

READ: Investors count losses as Rwanda banks seize hotels

Despite the tight market, developers have not shown any signs of slowing down — with new complexes like Amarembo, Muhima Investment Group, Nobelia, Equity Towers, and others set to open soon — in a market where some are already struggling for occupancy.

Industry players are predicting major problems in the near future.

Other property developers that have already acquired construction permits to put up buildings in the city include Mall de Plateau near the City Hall, GT Bank Building and Cogea Bank.

“When you see the supply in the market, it is worrying. In the next three to five years we are going to have a problem of oversupply in the CBD. I am concerned,” said Charles Haba, the managing director of Century Real Estate.

However, Merali Mpabgwanamaguru, the person responsible for master plan development control at the City of Kigali, downplayed the fears of oversupply.

“I don’t agree that there is an oversupply, or that we are nearing oversupply. Economic growth must go hand-in-hand with these developments. There is a drive to make people stop building residential houses, to occupy the newly constructed commercial buildings in the city,” he said.

Some of the new developments are struggling with occupancy and are now banking on municipal action to drive traders into the new buildings.

Developers in the CBD are also facing pressure from high quality shopping and office complexes coming up in the suburbs, like Kigali Heights and Umuyenzi Plaza, which have provided customers with more choices.

“The survival in the CBD looks tricky; the real opportunity now seems to be outside, even elsewhere in the region, even in Nairobi, For a long time, people have been moving away from the CBD. Look at Kampala, people moved out a long time ago. They opt for Nakasero, Kololo,” said Mr Mpabgwanamaguru.

READ: Uptake of office space slow in East African capitals

“Some buildings have not been occupied for a year, and this is because they charge very high rents. Some go for as much as $25 (Rwf20,276) per square metre. Many are under pressure to pay back bank loans, so they want to get their money back as soon as possible,” he added.

The increased number of commercial and office spaces however has not brought rental prices in Kigali down as expected.

This is attributed to the fact that most of the buildings have been built using money from loans with high interest rates.

“One would think the high number of buildings would at least bring the rents down, but they are increasing. It is a burden for us, you get squeezed to the limit,” said Fabien Iratureba, a businessman in Kigali.

Experts have said that it is unlikely that the high supply will lead to reduced rent because of the high investment cost in construction, emanating from the fact that most of the materials used are imported and are expensive.

Industry analysts say that unless banks and the government come up with a structure of financing for the construction industry, the problem of high rent will remain even after the market gets more commercial buildings.

“Even though the supply has not brought the rents down, it has stabilised the prices. Some consumers are willing to pay even more for quality space,” said Mr Haba.

Limited supply of quality commercial space has in the past been cited as a hindrance to the entry of regional and global retail brands, making the economy to miss out on potential job creation.

The opening of Kigali Heights, a premier office and commercial complex, has seen brands like Mr Price, Bossini, CBA, Riders Lounge and Java House enter the Rwandan market.

Kigali Heights charges $20 (Rwf16,222), per square metre for office space, and $30 (Rwf24,335) is charged for retail space, per square metre. Space on the ground floor at Umuyenzi Plaza at Kisementi goes for $21 (Rwf17,032) per square metre.

The new buildings were expected to bring the rental prices of older ones in the market down, but this has not happened. Experts say that the old buildings instead gain value because they are regarded as established business centres.

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