The latest real estate market report for the second half of 2022, published by Stanbic Properties Limited, a subsidiary of Stanbic Uganda Holdings Limited shows mixed activity performance in different spaces attributed to different factors.

The report indicates changes in price, demand and related variables for residential, retail, office, rental, hospitality spaces in different parts of Kampala Metropolitan areas for the last six months of 2022 compared to the same period in 2021.

According to the report, the second half of the year 2022 registered a 4% surge in demand for office space in Kampala City.

SPL’s Chief Executive Spencer Sabiiti said that the Kampala office market leasing activity for Grade A and B witnessed a solid recovery in the second half of 2022 compared to the same period the previous year with approximately 12,000 m².

Class A properties represent the highest quality buildings with higher income tenants while class B properties are a step lower from class A properties—in terms of quality.

The report indicates changes in price, demand, and related variables for residential, retail, office, rental, hospitality spaces in different parts of Kampala Metropolitan areas for the last six months of 2022 compared to the same period a year before.

Sabiiti further explained that the space taken up was a combination of expansionary or consolidation-led and pent-up demand leasing as occupiers began to realign their business strategies after a lengthy hiatus post-COVID-19.

The report notes a balance between personal and company preferences continuing to be tested with the advent of a new trend of hybrid workplace strategies featuring a mix of on-site and remote working with more focus on employee wellbeing.

The report found that rent for Grade C declined by 12.5% from USD 8/m²/month registered in December 2021 while those for Grade A and B quality space remained stable in the second half of 2022—recorded at USD15 and USD 11/ m²/month respectively.

“Going forward, we anticipate office rents particularly for Grade A to remain on an upward trajectory in the next 12 months on the back of tight vacancy, robust demand and limited new supply for rent,” Sabiiti said.

Over-saturation of Kampala’s office market has spurred the emergence of a nascent office market for Wakiso and Mukono, particularly on the upper floors of mixed-use buildings along the arterial routes.

However, the bulk of office supply in these nodes is suitable for small and medium enterprises, start-ups and single-person occupiers.

The weighted median rents for decent office space in buildings located along arterial routes out of Kampala stagnated at UGX 25,000/m² /month as of December 2022 except for Mukono Municipality which registered a 12.5% annual increase, up from UGX 20,000/ m²/month recorded for the same period in 2021.”

Retail rental outlook

The Kampala retail market generally showed rising cost of living continuing to be the key challenge faced by most retailers in the period under review. This is evidenced by a 10.6% year-on-year increase in headline inflation recorded in November 2022 compared to 2.6% registered in November 2021 according to the Uganda Bureau of Statistics surveys.

In addition, the second half of 2022 witnessed a sense of normalcy return in Kampala’s prime retail malls and ‘business as usual’ is the attitude adopted by most retailers owing to a number of new openings registered.

Prime locations on the ground and first floors continued to be keenly sought after as retailers took advantage of tenant-favoured markets to secure more accommodative rents.

Furthermore, the shift to online consumption during the COVID-19 pandemic has come at the expense of physical retail.

“We witnessed landlords and retailers in prime malls experimenting with diverse tactics to lure consumers back to brick-and-mortar retail stores,” Sabiiti said adding, “some of the tactics included supplementary promotional events, thematic retail stores and extended display areas.”

The report adds that rents have shown little or no noticeable movements since 2021 with the highest rents stagnating between USD 22 to 27/m²/month for prime retail space on the lower floors and between USD 12 to 16/m²/month for large space occupiers on similar floors.

Going forward, the report anticipates a cautious expansion approach by retailers and developers as demand is expected to be relatively lethargic in the first half of 2023, with a recovery likely to pick up from the second half of 2023 onwards.

The report also anticipates an upsurge in the development of strip mall retail space, measuring up to 5,000 m² since they are easy to manage, typically requiring smaller shop sizes and lower upfront costs.

Beyond Kampala, the Wakiso and Mukono retail market weighted median retail rents decreased by 2.1% year on year from UGX 48,600 /m2/ month on the ground floor in December 2021 to UGX 47,580 /m2/ month recorded in December 2022. This is mainly attributed to the spillover effects of the high cost of living that wiped out the disposable incomes of predominantly middle-class consumers. The biggest price movements were registered in Entebbe and Kira municipalities at -10%.

Residential property market

According to the report, Kampala Residential Market year-on-year rents for stand-alone houses stagnated in Kampala’s upscale residential suburbs of Kololo, Naguru, Nakasero and Bugolobi – were registered at a median price of USD 3,500 per month.

The second half of 2022 saw an overall 5% annual reduction in rents for both 2 and 3-bedroom apartments in the high-end residential areas of Bugolobi, Nakasero, Kololo and Naguru with weighted median rents recorded at USD 1,900 and USD 2,375/month for 2 and 3-bedroom apartments respectively as of December 2022.

This was mainly attributed to a demand and supply disequilibrium with supply outstripping demand as the previous pipeline stock of apartments was completed.

Beyond Kampala, the report says, the middle-class settlements of Wakiso and Mukono registered annual weighted rental growth of 10% and 6% for 2 and 3-bedroom apartments per month respectively as of December 2022.

This can partly be attributed to the scaling up of ongoing government road infrastructure projects in these locations which has in turn opened these suburbs to residential developments.

Industrial and hospitality property market

In Kampala Metropolitan Industrial market, the SPL research team observed a partial crossover between retail property and warehousing properties in the second half of 2022. This is emphasized by the fact the new warehouses have the possibility to be used differently.

On the other hand, the team is projecting approximately 550 star-rated keys to be added onto the Kampala Metropolitan hospitality market in the next 12 months.

Additionally, they (the SPL team) registered a 13% weighted average increase in average daily rates (ADR) from USD 115 per night registered in December 2021 to USD 130 per night recorded in December 2022 for star-rated hotels, resulting in a revenue per room (RevPAR) rate of USD 75 as of December 2022.

This agrees with the Uganda Bureau of Statistics producer price indices report of July-September 2022 that revealed that persistent annual price movements in accommodation services were registered at 9% compared to the same period in 2021.

The key drivers were mainly spillover effects of government incentives aimed at stimulating recovery of the tourism sector particularly capitalization from the Uganda Development Bank (UDB) in form of soft loans with flexible terms.

Primary research revealed that the emergence of the Ebola virus Sudan variant in the second half of 2022 clouded the full recovery of the hospitality sector to pre-pandemic levels, with approximately 19% of tourists postponing their accommodation bookings or cancelling their planned travels to Uganda and thus, dampening the recovery pace.

That said, the studied area recorded an 18% annual increase in occupancy from 40% registered in December 2021 to 58% recorded in December 2022.