The private sector has been growing over the past decade, creating the need for more office space, especially in Kigali. This demand has peaked, resulting into shortages. Business Times’ Ben Gasore explores the problem.
Demand for office space in Kigali is on the rise and most commercial buildings in the city are doubling roles as retail stores and office rentals.
To best understand the current dynamics of the real estate market in Rwanda, one ought to know the factors that affect demand and supply in the sector.
Lillian Mupende, the City of Kigali director of urban planning, said many developers were building structures according to market trends and affordability.
She, however, noted that though there was shortage of office space, the city authorities do not know the actual rate of demand.
“We are going to carry out a study next financial year to determine the demand. But we estimated the likely demand while developing the city master plan, basing on the population size.
“This has enabled us to get a rough idea of what is needed,” she explained in an interview with Business Times.
In spite of the new high-rise buildings, Mupende said the high cost of rent and the limited number of quality space was among the factors that forced many corporate organisations and individuals in Kigali to convert residential houses into offices.
A recent survey by this newspaper showed that many civil society organisations, bars and restaurants, churches, political parties and pharmacies preferred to rent space in residential houses rather than commercial or administrative facilities.
The trend could be influenced by the high rent charges in commercial building, sector watchers said.
For example, in 2009, Akazi Kanoze, a project supported by different organisations, including USAID and the Education Development Centre, converted a residence in Kacyiru into an office.
The single storeyed house on a 4,000 square metre piece of land costs them $2,500 (Rwf1.6m) per month in rent fees, while space of about 336 square metres goes for $9,000 (Rwf5.7m) at Kigali City Tower.
“When you have limited quality office space, rent will go up. If we had enough quality office space in Kigali, the rent fees would be moderate and attract more people to occupy the available space,” Mupende said.
Mupende added that clients’ preferences also determine the location of the building.
“If a business person is targeting clientele in Remera and fails to find office space in commercial buildings around the area, he is forced to rent a residential house,” she explained.
She noted that was the reason the city authority’s master plan segments the uses of buildings according to the different zones and areas.
This, Mupende added, was to provide for subsidiary areas that can offer services similar to those offered by the central business district, if it is developed as the major commercial or financial hub.
“For example, if you take Nakumatt supermarket as one of the businesses we have; they started with one branch at the Union Trade Centre and later, opened another outlet at Kigali City Tower and now are looking to establish a third store in Remera.
“This is because they realise there is a pull and need to target people in Remera rather than having them come to town or refraining from doing any shopping,” she adds.
All in all, there is definitely a serious shortage of office space as evidenced by the people working from residential houses.
Secondly, Mupende noted that some of current offices in the city are of poor quality.
“There is having an office, which is not suited to be one. Some people have turned space that would have been used as shops into offices,” she says.
“In Gisimenti, for example, you will find many of the buildings have a mixed use of retail facilities and office space, yet normally, the two have to be designed differently.”
Mupende added that though both services can be operated in the same building, they should have a unique set up, with independent electrical wiring and fibre optic cables, among other considerations.
Stephen Milindi, the managing director of Misteph & Company, a property management firm, said the high rent fees were a result of the exorbitant cost of land in Kigali.
“A large plot of land in the Central Business District is sold at $8m (Rwf5.1b). In fact, it would be better if the government sells to an investor at lower rates to construct commercial buildings so that the state earns more from it in the long-run,” he said.
Currently, office space costs an average of $15 (Rwf10,000), per square metre per month.
Milindi said despite the fact that the government has offered many incentives to investors, such as tax waivers on cement, to attract developers to set up business complexes in Kigali, this has not been effective. He observes that if the government reduced the price of land, more real estate developers would be willing to invest in setting up commercial buildings to ease the shortage of office space, especially in the city centre.
“When an investor acquires land at the current rates and builds an office block, the turnover per year is low even when the building is fully occupied. With low expected turnovers, banks also find it hard to finance the whole project…that is why many are bowing out,” Milindi noted.
When all is said, Kigali needs more office space to satisfy its growing demand. It is only up to the real estate players to “do their homework, find cheap financing and technology and cash-in from the ready market, experts said.