Uganda real estate in steady FDI growth

Tuesday February 19 2019

UAP Business Park

UAP Business Park was one of five commercial office buildings affected by relocation of the URA in December. FILE PHOTO | NMG 

By BERNARD BUSUULWA
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Total foreign investment flows destined for Uganda rose from $700 million in 2017 to $1 billion by end of 2018, a remarkable growth driven by new investments made in the electricity and industrial sectors plus oil and gas industry.

However, exorbitant land prices charged by landlords have disappointed some foreign investors amid suspicion of rent-seeking by local sellers angling to cash in on idle, underdeveloped pieces of land.

Shortage of useful data in Uganda has affected due diligence investment studies. This has led to long project preparation periods of up to five years, experts say.

The recent relocation of several Uganda Revenue Authority staff from various rented office premises in Kampala to its new 22-floor headquarters building located in Nakawa division, Kampala, is expected to trigger a ripple effect in the real estate industry this year as affected property owners struggle to fill up the considerable, vacant space.

The new building is valued at Ush139 billion ($37 million) and can accommodate up to 1,700 staff.

Five commercial office buildings were affected by the massive relocation in December last year. These include Crested Towers, Windsor Loop and UAP Business Park. Vacant, prime office space attributed to URA’s relocation is estimated at 3,000 sq metres, according to data compiled by Knight Frank Uganda.

Confusing signals tied to the government’s office space development strategy could trouble property developers this year ahead of a major restructuring of statutory agencies scheduled for 2021.

Whereas government announced plans to create a dedicated office campus for all ministries located along the Kampala-Entebbe Highway last year, continued investments made in office buildings by statutory bodies.

Besides URA, the Inspectorate of Government and the Public Procurement and Disposal of Assets Authority are already pursuing large office development projects worth billions of shillings in an attempt to save money on rents.

“The government cannot be relied on anymore to rent prime office space owned by private property developers. URA’s exit from Crested Towers alone has led to a 20 per cent drop in occupancy levels in that property so far, while other government agencies are preparing to construct their own office premises.

“Private property developers should look at the small to medium enterprises sector as the next top growth driver for commercial office space.

Many tenants, particularly in downtown Kampala struggled to pay rent and absorb higher rental charges during 2016 and 2017, amid difficult economic conditions and prolonged civil conflict in South Sudan — one of Uganda’s leading export markets, according to industry observers.

This translated into lower demand for space, a slowdown in new real estate projects and high tenant exits from prime locations.

“The increase in bank liquidity levels noticed since last year has encouraged many banks to lend to the real estate sector and this has boosted construction activity especially in the commercial residential segment,” said Richard Byarugaba, managing director, National Social Security Fund Uganda.

“We are pushing on with the Lubowa housing project, Pension Towers project and large commercial property developments in Mbarara and Gulu towns with around 1,000 sq metres of commercial office space to offer,” Mr Byarugaba added.

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