At the lower end of the scale, owner-occupiers take the form of professional and small business tenants occupying converted houses in traditionally residential areas. Property weightings in institutional portfolios in Kenya are typically around 40% but can be as high as 80%. Average pre-tax returns on commercial property were in the region of 10-14% throughout the 1990s, which, coupled with 8-10% annual capital growth, provided a safe hedge against inflation. Sale transactions are rare, partly due to unaffordable long-term finance in Kenya, which severely limits the number of potential purchasers for prime large scale properties on the market.
At the point when Procuring a Property Valuers, Prominent office buildings, including Lonrho House, Chester House, Bank House and Stanchart House in the CBD, have been on the market for between one and three years. Interest has been thin though some transactions are expected to complete in 2000.
Office leases are typically for six years with rent reviews every two years.Reviews tend to be pre-agreed, typically at 15-25% increments every two years, but can also be to open market. Rents in Nairobi are dictated more by supply and demand than inflation rates and growth.
Figure 8 shows the magnitude of rental growth in shillings over the past six years with rents on the Hill outperforming those in the CBD. Annualised rental growth since 1993 has been 14% on the Hill compared to an annual growth of 11% in the CBD. Good buildings in the CBD are letting at rents of Kshs 30-35 per sq ft per month (US$4.40-5.10 per sq m per month) exclusive of service charge. Podo Park and Lion Place achieved rents of Kshs 45 per sq ft per month (US$6.60 per sq m per month), while the Rahimtullah Trust Building on the Hill is almost fully let at between a low of Kshs 45 per sq ft and a high of a dollar linked Kshs 70 per sq ft (US$10.20 per sq m per month).
Depending on the size of the tenant and the date at which the commitment was made. Typical service charges range from Kshs 10-18 per sq ft per month (US$1.50- 2.60 per sq m per month), rising to as high as Kshs 40 per sq ft per month (US$5.80 per sq m per month) for air-conditioned space. A widening gap in rents between the CBD and outlying areas, coupled with rising fit-out costs, could slow the process of decentralisation, particularly during the current depressed economic climate.