Why 15% of Kigali commercial buildings space is unoccupied

A new survey has shownthat occupancy rate for commercial buildings in Kigali city stands at 85 per cent.

Among the key driving factors include buildings’ proximity to clients, amount of rent and quality of the building among others.

The City of Kigali Commercial Real Estate Survey analysed the market between 2015 and 2018 to help understand the supply and demand of the commercial real estate market in Kigali city by looking at occupancy rates and tenant preferences.

Dickson Malunda, a researcher with the Institute of Policy Analysis and Research (IPAR Rwanda), said that they surveyed 1476 tenants and 456 commercial buildings owners within nine commercial centres.

They are in Nyarugenge (CBD), Nyabugogo, Nyamirambo, Gisozi, Kacyiru, Remera, Kimironko, Nyamirambo.

 “We conducted surveys among tenants in order to get some understanding of the demand side within Kigali’s Commercial real estate market. We analysed reasons for renting buildings for business purposes,” he said.

The findings presented last week indicate that 46 per cent of   the tenants for commercial buildings prefer buildings with proximity to clients while the location prestige comes second with 18 per cent tenants.

“Given that the client proximity and prestige are factors, location, design, and quality of commercial buildings seem to matter more than price. Surprisingly cheaper rents comes a distant 3rd with only 14.5 of clients considering as key criteria when renting commercial space,” he said.

Other preference reasons include available internet, complimentary services to business among others.

However, occupancy rates are higher for buildings located in city suburbs (88 per cent) and downtown (86) compared to City Business District (CBD) (82 per cent).

Comparing to occupancy rates for buildings opened before and after 2012, there is a declining trend in the occupancy rates after 2012, he said.

The analysis shows that of 8,122 permit applications between 2015 and 2018, 88 per cent were new construction permits (7,130) while 7 per cent was occupancy permits and others.

The total floor space building use in 2015-2018 was 40.8 million square meters with commercial buildings taking 20 per cent, residential buildings with 61 per cent, industrial buildings taking 9.4 per cent.

Social and cultural buildings, educational buildings, health buildings and others occupied the remaining space.

Gasabo and Kicukiro Districts have 48 per cent and 43 per cent respectively of the total floor space.

The city suburbs of Kimironko, Nyamirambo, and Gisozi have the amounts for commercial space per unit per month at Rwf100,000, Rwf150,000, Rwf175,000, and Rwf250,000 respectively.

Medium rent commercial centres include Nyabugogo, Kicukiro, and Kacyiru with amounts ranging around Rwf250,000, Rwf268, 000, and Rwf300,000 respectively.

High rent centers include Kimihurura, Remera, and Nyarugenge with rent per unit per month of Rwf946, 500, Rwf341, 667 and Rwf311, 500 respectively.

“Majority of owners think that the building will be commercially viable in the medium term 37 per cent and long term 40 per cent  while 10 per cent need government policy support to improve viability,”  the researcher said adding that 11 per cent see it is  not viable.

The study recommends affordable rent costs for the majority of small and medium enterprises.

It noted there are gaps in communicating changes in zoning and building regularly which affects rates of return on the commercial building which have been financed by loans.

“Financing landscape involves banks striving to recover about 3 times the principal on commercial real estate loans. This puts upward pressure on rental prices for developers to recover bank loans.”

 Eugenie Kayitesi, the Executive Director of IPAR Rwanda, said that lack of tenants affects investors in the real estate sector.

“When they get loans from banks to build big commercial buildings and they lack clients to the buildings, it becomes an issue. We have to link, investors, clients with banks and try to also, manage high-interest loans among other factors to increase the occupancy rate,” she said.

Amb. Claver Gatete, the Minister of Infrastructure, said: “The findings will provide a basis to seek solutions to issues in the sector. It shows what we have to consider so that we raise occupancy rates. Government has put in place different programmes to see how to partner with the private sector to ensure inclusive urbanisation and investors’ profitability. But it has to go progressively,” he said.