Before the COVID-19 pandemic, Kenya’s domestic office market was in the midst of a decade-long period of expansion. At the time, Capital values and rental growth had reached unprecedented levels.
The medium-term outlook for the market was strong, but as for many industries including the property industry, COVID-19 served as a circuit breaker.
Governments around the globe implemented strict lockdown and social distancing measures. Many office employees faced extended periods working from home.
Naturally, this shift has raised questions about the market’s short to medium-term outlook, and the utilization of office space moving forward.
The impact of COVID-19
COVID-19 accelerated a lot of the long-term structural trends that the office sector was already experiencing, including employees working remotely.
We expected occupier demand to reduce, given the impact of a recessionary environment on the labour market.
Floor space requirements from tenants were also expected to decrease, depending on which industry, as working from home became more prevalent.
Working from home
It is anticipated that an average of 50 per cent of the workforce could be Working From Home at least two days a week in the post-COVID environment. This could result in a reduction in floor space for some tenants.
The severity will depend on the quality and duration of the asset’s underlying lease profile.
Future demand for office space
Longer-term office demand is correlated to population growth and urbanization. In addition, there may be a de-densification in response to physical distancing requirements, which could see workspace ratios increase.
The increased adoption of working from home may change how the office is used, however it is unlikely it will impact the need for a centralized space for staff.