Despite an increased supply of commercial and office space in Kigali, rent remains high for tenants, which has been attributed to the fact that most of the buildings have been built using on expensive loans due to high interest rates.
There was a sense of optimism in the market with many commercial complexes completed in the central business district and other areas around Kigali and others nearing completion. The business community expected a slowdown in rental costs but this has not happened; instead, rent has gone up in some places.
“Even if one hundred commercial houses are added to the market, rent will not go down,” said Derrick Rwitare, general manager of CVLD. “It all comes down to the investment cost; most developers are using borrowed money, and the money is not cheap.”
Mr Rwitare said unless banks and the government come up with some structure of financing for the construction industry, the problem of high rent will be there even if the market gets more commercial buildings.
“Unless the market gets subsidies, or if the city decides it will not tax commercial construction for some time, there is a need for affordable financing,” said Mr Rwitare. “The banks want their money in not more than 10 years.”
He said in a building there are usually different costs for different spaces. However, the issue is that, as expected, the demand for the ground floor for businesses is high, which has driven up costs for these spaces, yet most commercial tenants target this space.
The high charges on rent for commercial space are passed on to the final consumer, hence driving up prices of consumer goods at a time when disposable income is reducing among the population.
In a span of four years, big shopping and mixed complexes sich as Kigali City Tower, Grand Pension Plaza, M Peace Plaza and Nyarugenge Market have come up in the CBD while others like Champion Investment Corporation (CHIC), and other commercial plazas are soon to be opened.
Other areas outside the CBD are also churning out big commercial buildings. Kigali Heights, a $40 million (Rwf30 billion) mega complex, is expected to be complete by March. Other mixed buildings are coming up in places such as Remera, Kicukiro and Kimironko suburbs but rates are still high.
Space on the ground floor at the newly completed Umuyenzi Plaza at Kisementi goes for $21 (Rwf16,000) per square metre, excluding VAT; it is $10 (Rwf7,500) for the rest.
“I really thought rent will go down but it’s still high,” said Diuedone Munvaneza, a businessman in Kigali.
“Some only reduce if you are signing a long-term tenancy contract, but still it’s high for small businesses like mine.
“This makes doing business really hard.”
One would think that since new buildings are coming up, old commercial complexes would revise their rent downwards as per the principle of competition; however, with commercial real estate it is the other way round.
Real estate industry experts have noted that, from experience, a prime building which has been in the market for some time does not lose value because others have come up around it but actually gains.
In normal circumstances, one would expect an older building to reduce rent with the advent of others that are even better, but the opposite happens, and they increase rent. Because of that, it attains the stage of being one of the established business centres.
For example, old commercial buildings such as MTN Centre, UTC and others have increased their rent. MTN raised rent from $15 (Rwf11,000) per square meter to $18 (Rwf13,000) while UTC has increased from $10 (Rwf7,500) to $15.
A property owner who spoke to Rwanda Today on condition of anonymity however said much as they would want to reduce rent to get clients, they cannot go to the level tenants ask for because they have to pay back expensive bank loans that they took to construct the buildings.