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Commercial buildings adopt sectional titles in kenya

Firms interested in owning offices but without the capital to buy entire buildings are following a path charted by residential developments; buying the space they need, 

3175_santamariaAny organisations interested in owning their offices but without capacity to put up such developments are opting to buy space in new or existing commercial buildings.

Such small and medium-size professional organisations and some small and medium enterprises (SMEs) do not have enough capital to buy or put up their own office blocks.

This effectively moves them away from paying rent while at the same time enjoying the benefits that come with owning their own space.

This is a trend that is picking up in commercial developments. It is, however, not new having been in play, mostly in residential developments through the concept of sectional title deeds.

With rental charges almost doubling every five years, this trend is also considered a major investment avenue for organisations that would ordinarily find investing in a ‘whole building’ out of their reach. Apart from the fact that they end up with their own space, they also benefit from the substantial capital growth of the property over the years.

Fuelling this new trend is the high cost of land, high construction costs and desire to be located in a particular address.

IQSK, for instance, initially wanted to buy land and build its own headquarters. For some time now, quantity surveyors have been yearning for a place to call home. The Institute of Quantity Surveyors of Kenya (IQSK) — founded in 1994 and brings together more than 620 quantity surveyors — has always wanted its own building where its secretariat would be located.

Currently, the IQSK secretariat occupies a 300 square feet space at Fatima Flats on Marcus Garvey Road in Kilimani, Nairobi. But the institute, which moved to Fatima Flats hurriedly as their former office location was demolished to give way for redevelopment, says the space they occupy, formerly a one-bedroom residential house, can no longer accommodate its activities.

And with some of the units at Fatima Flats still being used as residential space, the institute says the location is not right for the corporate image of quantity surveyors.

Last year, members resolved to buy their own space where they would relocate the IQSK secretariat. They have identified a new office block coming up on Kindaruma Road off Nairobi’s Ngong’ Road.

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However, they don’t plan to buy the whole building. Instead, they will take up only 1,435 square feet of office space in the new five-storey building.

For this, says IQSK chairman David Gaitho, the organisation will part with a total of Sh16 million.  Sh14.5 million will go to the actual buying of the space, while the rest will cover incidental costs.

“As an institute, our identity or corporate image is key. When you are located in some nondescript place as a professional body, no one takes you seriously,” says David.

Whereas the common trend has been for organisations to build their own property where they can be permanently located, David says IQSK could not follow this route because it did not have enough money. He also says they considered it would be a waste of resources to buy land at an exorbitant price and then “to only put up a two-storey building on such a pricey piece of land”.

But David says the parcels of land they were getting were in far-flung addresses like Kitengela, Kiambu Road and Karen, yet centrality is key to them.

High prices

“Scarcity of centrally-located land makes it necessary to buy space in new office buildings,” he says.

Land prices have been escalating in major towns over the last few years, sometimes doubling in two or three years in places like Nairobi.

For instance, half-an-acre of plot was going for about Sh50 million in Nairobi’s Kilimani area in 2009. Today, the same size of land in the same location will fetch about Sh120 million.

This dramatic increase in land prices, experts say, has made partial buying of office space — in much the same way apartment units are bought by individual homebuyers in a block of apartments — increase in popularity.

“People, especially SMEs and medium-size professional firms, find it a good development since they only buy the amount of space they need,” says  Gikonyo Gitonga, the managing director of CB Richard Ellis, a Nairobi-based real estate firm.

He says the trend started in Nairobi about five years ago and is gaining popularity in major suburbs like Kilimani and Westlands, which are among the city’s growing commercial areas.

A market survey conducted by CB Richard Ellis and released in the second quarter of last year showed that the average sale price of office space in Westlands stood at Sh13,063 per square foot.

On the other hand, said the report, a good quality office space in Kilimani was going for Sh11,767 per square foot. In Upper Hill, a square foot of a Grade A and B office space was going for Sh14,500.

IQSK’s David says they are comfortable with the Sh16 million they will pay for the new office space. “This is the current market price for office space in Kilimani area. We find this cost within the means of quantity surveying fraternity in Kenya and Diaspora,” he says, giving the current going rate per square foot in Kilimani as between Sh10,000 and Sh12,000.

And developers are responding well to this new window of investment opportunity. One such is Jericho Development Company, developers of The Greenhouse, an imposing new eco-friendly office building in the heart of Ngong’ Road, Nairobi.

On its website, The Greenhouse, launched officially in April last year by vice-president Kalonzo Musyoka, describes itself as “the best solution for retail shops, large and small businesses as well as non-governmental organisations and other professionals who wish to get away from Nairobi downtown, yet stay within reach of all facilities close to Kilimani, Hurlingham, Kileleshwa, Lavington and Karen”.

Demand

Incorporating a six storey U-shaped main building and three small structures also serving as roof gardens for top floors in the midst of a colossal lively green yard, The Greenhouse has about 146,000 square feet with four floors of office space and ground level shops. All the space has been sold out.

This also works for developers interested in developing, selling and moving on to the next projects as was the case with The Greenhouse.

Charles Kahura, an architect, has been involved in five such projects both as an investor (through an investment club) and a project manager since 2008. Four of the projects are in the Kilimani area of Nairobi, the latest being Blue Violet Plaza, where IQSK is buying office space.

He says the demand for up to two floors of office space is high.

“I think most people have realised that buying land to put up two floors is a waste of land. The per unit cost of putting up such a squat building is so high that you end up under-utilising the potential of the land,” says Charles, also a former Nairobi Central Business District Association chairman.

Adopting trend

He says the trend started with the exodus from the city’s central business district, which has seen areas like Westlands, Kilimani and Upper Hill gain prominence as business districts.

This is as professional firms and corporate organisations choose either to rent or build their own offices in the less congested commercial locations. Some of them buy apartments in residential areas and convert them into office space after going through the change of user process.

“That market has grown tremendously. I think it is a good trend as far as provision of office space is concerned,” says Charles. On average, he notes, 1,350 square feet of office space in Kilimani goes for about Sh15.5 million.-Standard News

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