Millions at stake over low uptake of office space in Kigali City

Sunday December 24 2017

Analysts fear that the low occupancy rates

Analysts fear that the low occupancy rates could force banks to apply a cautious approach when financing big ticket projects. PHOTO CYRIL NDEGEYA | NATION 

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The country’s property market has reached a critical junction as uptake of completed rental space in Kigali remains low, complicating cash flows for developers and financiers.

According to a report for the first half of the year by global property consultancy Knight Frank, retail space in Kigali reached 90,000 square metres in 2016 but only 35 per cent had been occupied by June. The report was released in December.

With an additional 25,00m2 expected to be delivered before the year ends, developers are left with 63,000 square metres of void space, which will pile more pressure on overall occupancy rates.

At the forefront of the large supply of retail space is Muhima Investment Company Ltd, MIG and Bank Populaire’s complexes in the central business district.

Despite being completed last year, the Knight Frank report names Champion Investment Corporation and Crane Building as some of the complexes which still have empty spaces. This means the developers are not generating enough revenue.

“There is a disconnect between supply and demand in the market,” said Eric Rutabana the CEO of Development Bank of Rwanda.

Mortgage financing

Analysts fear that the low occupancy rates could force banks to apply a cautious approach when financing big ticket projects as developers of completed complexes struggle to meet their operating costs and loan service schedules. This could affect banks’ ability to lend.

“When revenues are not coming in as expected, it affects banks’ ability to fund more large-scale projects,” said Mr Rutabana.

The National Bank of Rwanda reported a slight drop in mortgage financing by banks in the first six months of the year. The mortgage loan book dropped from 36.6 per cent in the first six months of 2016 to 35.1 per cent in the same period this year.

The country has four leading mortgage financiers: KCB Rwanda, Cogebanque, Equity Bank Rwanda, I&M Bank Rwanda and Guarantee Trust Bank Rwanda.

However, the mortgage books of these banks did not grow as much, partly because of the increasing non-performing loans in the real estate portfolio.

Combined, the four bank’s mortgage book expanded by 7.3 per cent to Rwf192 billion ($227.8 million) in 2016 compared with Rwf179 billion ($212.2 million) in the same period this year.

Modern buildings located in the suburbs of Kigali such as Umuyenzi Plaza, Kigali Heights and Remera Corner recorded high occupancy rates as retailers shift their companies from the central business district to suburbs with high foot traffic. 

“As a result, developers in the central business district of Nyarugenge district are facing a lot of pressure from modern retail complexes in the suburbs, which have provided customers with more choices,” the report points out.

The Knight Frank report says most of the quality spaces in the suburbs was taken up by regional brands such as Java House, Bosini, and Rider’s lounge.

The report attributes the increase in modern buildings to a growing demand by the rising middle class for modern and sophisticated retail malls.

The Knight Frank report noted that “rental price levels have remained the same for the past one year because landlords are not willing to reduce rent especially for the ground and first floors.”

“The average rental rates for retail space range between Rwf16,864 ($19) -Rwf21,924 ($25) per m2 for prime areas and Rwf8,432 ($9) - Rwf14,335($16) for less prime spaces,” said the Knight Frank report.

According to the report over 10,000m2  space was taken up by NGOs and multinationals after a January directive was issued by Kigali City authorities to businesses and nonprofit organisations operating from buildings designated for residential purposes to relocate to commercial buildings.

The directive for businesses to demolish old properties in the central business district and redevelop them has also boosted occupancy rates.

Residential market
Apartments for rent dominated inquiries in the residential market during the period under review, beating stand-alone residential houses. The demand was driven by a growing number of expatriates.
The infrastructure rebate to developers of high density and affordable housing units is starting to pay off with Knight Frank reporting that the cost of housing units at Vision City has dropped by 15 -20 per cent.
The Kigali City directive to businesses and NGOs to relocate to commercial buildings resulted in a drop in occupancy rates of residential houses.

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