Why Companies Are Dumping Nairobi Offices For Remote Work- Report

This is despite Kenya boasting a significant inventory of grade-A office buildings.

Why Companies Are Dumping Nairobi Offices For Remote Work- Report
A photo of office buildings in Westlands, Nairobi. /MARVIN CHEGE.VIRAL TEA KE

Companies are increasingly doing away with physical office spaces in Nairobi in favour of flexible workspaces owing to the adoption of remote work during the COVID-19 pandemic.

According to Knight Frank's Kenya Market Update report covering the second half of 2023, demand for office spaces in the capital has dropped mainly due to the challenging economic conditions that were precipitated by the pandemic.

This is despite Kenya boasting a significant inventory of grade-A office buildings.

Since 2010, the development of these premium properties has steadily increased in response to the growing demand from international investors, governments, diplomatic missions, and multinational corporations attracted by Kenya’s appeal as a top investment destination in Africa.

A person working on his laptop. /FILE

"One of the primary impacts of the COVID-19 pandemic on the office sector was the transformation to flexible workspaces.

"As organisations transitioned back to the workplace post-pandemic, there was a shift towards adopting flexible workspaces and remote working arrangements. Consequently, companies have gradually embraced these changes, leading to an expansion in the presence of flexible workspace operators," read the report in part.

According to the report, the latest trend however saw Westlands, known for its dominance in A-grade office 
space in Kenya, solidify its reputation as the premier office hub by welcoming new flexible workspace branches.

These include Regus, Spaces, and Ikigai. Spaces, a sister brand to Regus and owned by the global hospitality giant IWG (International Workplace Group), opened its doors on the 14th floor of the iconic GTC (Global Trade Centre) towers, opened officially by former President Uhuru Kenyatta in 2021.

With many companies adopting a remote working culture and workers operating from home, many companies have not expressed interest in renting new office outlets, a matter which has led to monthly prime office rent stagnating at USD1.2 (Ksh187.80) per square unit.

Constructing prime office properties entails significant costs, often necessitating developers to secure loans, many of which are denominated in USD as financiers hedge against depreciation in the Kenya shilling.

"However, due to the persistent loss of purchasing power of the Kenyan shilling against the USD, landlords face losses when collecting rent in KES while servicing dollar-denominated loans. In response to this exchange rate challenge, landlords have increasingly favoured collecting rent in dollars, a trend expected to continue in the long term," added the report.

Despite the prevailing challenging economic conditions, office occupancy rates experienced a notable 5% increase from 71.5% in the first half of 2023 to 76.5% in the second half of the year, largely attributed to a limited new supply of grade A office space in the market and increased uptake of existing A-grade properties.

The report cited major office developments in the pipeline such as the headquarters of Call Centre International (CCI) Kenya in Tatu City, Purple Tower along Mombasa Road and The Atrium in Westlands projected to be completed in 2024 while Sagittarius and Bishop's Road in Upperhill are estimated to be completed in 2025.

Nairobi has historically grappled with an oversupply of office space. This, combined with the rising cost of capital, has led developers to adopt a “wait-and-see” stance towards new investments.

"Consequently, the review period saw minimal office completions, with notable exceptions including the Kanha building in Westlands and the government-owned Talanta Plaza in Upperhill.

"The actual development pipeline remains limited, with the majority of projects being speculative in nature," added the report.

The Talanta Plaza at Upperhill, Nairobi. /ABABU NAMWAMBA