Ten per cent of the Kigali city’s commercial real estate developers are seeking government’s intervention to improve the viability of their projects, industry players heard yesterday.
This was revealed during a public lecture organised by the City of Kigali under the theme, ‘the dynamics of the commercial real estate market in Kigali’.
During the event, that brought together city authorities and stakeholders in the real estate sector, among others, a survey that was carried out on the real estate market within Kigali was presented.
The survey was carried out by local think tank, the Institute of Policy Analysis and Research (IPAR-Rwanda).
Dickson Malunda, a Senior Research Fellow at IPAR-Rwanda, told the participants that the survey carried out late last year indicates that though 77 per cent of the respondents had faith in the medium and long-term viability of the commercial real estate sector, 11 per cent did not find it viable while 10 per cent felt that there was potential, but only with government policy support.
The survey involved 1,476 tenants and 456 commercial building owners within nine commercial centres in the city including Nyarugenge (CBD), Nyabugogo, Nyamirambo, Gisozi, Kacyiru, Remera, Kimironko, Nyamirambo.
IPAR-Rwanda is a locally-registered research and policy analysis think tank with core interest in conducting high-quality cutting edge research on policy issues, policy analysis and dissemination of research.
The research also assessed the confidence in commercial real estate market and while 14 per cent of the respondents put it at ‘high’, 6 per cent fell at ‘very low’.
Malunda told the participants that though the government had encouraged companies and institutions to move from residential areas, not much has changed as spaces remain unoccupied.
“We know that there was a policy where businesses and institutions were encouraged to stop operating from residential areas and instead consider renting space in commercial buildings. What happened is that people actually did so but only for a short time before they ran back to the residential areas,” he said.
Malunda said the research recommends the need to look into zoning regulations and working on how best to make them flexible, boosting them to respond to market demands.
He pointed out that gaps in communicating changes in zoning and building regularly affect rates of return on a commercial building which are financed by bank loans.
The financing landscape, he said, involves banks recovering about three times the principal on commercial real estate loans in the long run putting pressure on rental prices by developers seeking to recover bank loans.
“What we are asking for is flexible zoning regulations to allow construction investors to recoup their money. The pressure to service these loans will result in high rates. In the end, occupancy rates are low. In the end, you can’t pay back the loans. This calls for flexible zoning and construction regulations,” he said.
Denis Karera, a real estate developer, said that though the industry has its challenges, there was a need to look towards the future with a positive attitude.
“Almost all of us require bank loans to go into this business. During this process, it’s important to sit with the bank analysts and look at the worst and best-case scenarios. People should not be discouraged, they should focus on building these buildings for start-ups and SMEs because they are the future,” he said.
According to the survey, by the end of 2018, 7,130 investors had sought new construction permits, 559 had applied for occupancy permits, 197 were interested in modifying their buildings while 130 were interested in changing their building use.
Comparing occupancy rates for buildings opened before and after 2012, the report indicated that there has been a declining trend in occupancy rates.
However, it pointed out that occupancy rates are higher for buildings located in city suburbs and downtown when compared to CBD.
Interviews to determine tenant preferences also noted that proximity to clients was the most favoured with 46 per cent of tenants, while location prestige comes second at 18 per cent.
Given that client proximity and prestige are factors, location, design and quality of commercial buildings seem to matter more than price.
Surprisingly, cheaper rent comes a distant third with only 14.5 per cent of clients considering it as a key criterion when renting commercial space.Follow https://twitter.com/Africannash