The Determinants of Office Rents in Nairobi Central Business District

Abstract

Investment in commercial real estate offers immense opportunities for investors in both the public and private sectors. The commercial real estate which includes office properties generally has higher returns compared to other forms of real estate investments. Prudent investment in office properties, therefore, requires that investors have knowledge about the office market, and are fully aware of the factors that drive rental returns in the sector. This study sought to examine the office market in Nairobi Central Business District (CBD) and analyse factors that influence office rents. Specifically, the study objectives were to identify significant factors that influence office rents, determine the influence of the significant factors and rank them with respect to contribution to the office rental levels in Nairobi Central Business District (CBD). The study population comprised of all commercial office buildings in Nairobi Central Business District (CBD). Nairobi CBD was chosen as the case study area because it has more commercial office space and most of them are in the same locality. The data for the analysis were obtained from a sample of one hundred and fifty-six (156) commercial office space randomly selected from practicing registered real estate firms in Nairobi City. The methodology of data collection was through a literature review of texts, journal articles and published secondary documents. Field survey and observation were done to appreciate the physical and locational attributes that influence office rental value in the case study area. Questionnaires and oral interviews were conducted with real estate professionals (Valuers, property managers and estate agents) who are actively engaged in valuation, property management and estate agency practice in Nairobi to get their views on the office market and factors affecting office rents. Descriptive statistics and inferential statistics involving Multiple Regression Analysis (MRA) procedures were used in data analysis. The analysed data was presented in tables, graphs and charts. The study findings revealed three (3) office categories in Nairobi Central Business District, namely Class A, B and C. However, most offices were of Classes B and C whereas Class A office category was rare. Ranked in descending order of importance/significance, the study identified nine (9) critical determinants of office rents in Kenya, namely; Internal Circulation, Age, Service Charge, Size, Floor Number, Services, Finishes, Management and Parking slot. The study recommends that prospective investors in the office market should consider these factors in the design and investment in the office sector in Kenya. There is a need for more investment in office Class A category to meet the supply gap in this office category and achieve higher returns.