Upperhill business district in Nairobi seem to be losing its allure after just its second tenant in a few weeks announced it will leave the node for a more tranquil Lavington area.
First it was European Union which announced relocation and now Coca cola.
The multi-national beverage company, intends to sell its Upperhill office, which been the company’s headquarters for the East and Central Africa Region since 2008, and relocate to newly built 90 James Gichuru office in Lavington, Nairobi.
This according to the Coca Cola Africa general manager Ahmed Rady, this is in line with its Vision 2020 on workplace agenda that aims at achieving a new modernized space built to suit the needs of a more agile, and fast paced business.
According to media reports, the 66,360 Square feet (6,165 SQM) office building in Upperhill, sitting on 4-acres of land, was constructed at a cost of Kshs 700 million, which equates to Kshs 10,549 per Square Feet, and is being currently valued at Kshs 1.03 billion, translating to a value of Kshs 15,521 per square feet.
Cynton Investments, the leading real estate investor and knowledge hub has wade into the expected sale noting that this will likely be affected by existing conditions in Upperhill.
The company observes that this price is 14.0 percent higher than the current market average price for office space in Upperhill at Kshs 13,386 per square feet.
” We estimate that, at the current valuation of Kshs 15,521 per square feet, a buyer would generate a 7.0 percent yield, assuming rental income at the current Upperhill market average of Kshs 100.0 per square feet and occupancy of 90.1%. Given that commercial properties in Nairobi generate yields of 9.0%-10.0%, we are, therefore, of the view that the building may not be a good bargain at the proposed value.”
The report by Cynton argues that if the building is sold at the current market average price of Kshs 13,386 per square feet, the exit value of the same would come in at Kshs 888.3 million, and the buyer would generate a rental yield of 8.1%.
“To achieve a rental yield of 10.0%, at Upperhill average market rent and assuming 100% occupancy, an investor would buy at Kshs 12,000 per square feet and thus the building would be sold at a value of Kshs 796.3 million,” the report adds.
Cynton observes that the main risk factors for investors in the building include existing oversupply of office space, which stood at 4.7 mn SQFT in 2017 undermining the performance of the office sector as well as painful traffic congestion along the key access routes to the Upperhill area including Mbagathi Way and Ngong Road, which continues to discourage businesses setting up offices in the area.
Upper Hill also suffers from the unavailability of social amenities such as shopping malls, unlike other growing business nodes such as Westlands, Lavington and Karen.
“Given that the office sector is currently a buyer’s market, the seller is likely to accept lower bids for the building.”
The trend to exit Upperhill continues to gather pace after the recent exit by European Union and now Coca-Cola, this is mainly due to accessibility challenges in Upperhill.