Latest Knight Frank review highlights preference for Kampala suburbs

February 11, 2025 in Investment, Real Estate & Property by Editor

Areas located further away from the CBD still offer modern spacious units within quiet neighbourhoods providing a serene environment at more affordable rates away from noise pollution, increased construction sites, and congestion that has characterized the prime areas of Nakasero and Kololo.

There is increasing interest for upcoming residential projects sited away from inner city noise and congestion as the Kampala’s prime residential sector remained sluggish during the second half of 2024.

According to the latest Knight Frank Uganda Kampala Property Market Performance Review, this was characterized by low sales and rental volumes, and occupancy rates fell by two percent to 82 pc compared to the same period in 2023 (H2 2023).

However, there was a 1% rise in average rents for three-bedroom apartments due to the introduction of newer, larger, and more modern units, while rents for two-bedroom apartments remained unchanged. The property management and consultancy firm says the decline in occupancy levels is attributed to the upcoming projects in the secondary residential locations.

While these areas are located further away from the CBD (within a five kilometre to 10 km radius), they offer modern spacious units within quiet neighborhoods providing a serene environment at more affordable rates away from noise pollution, increased construction sites, and congestion that has characterized the prime areas of Nakasero and Kololo.

This has, in turn, forced the diplomats, expatriates, and other high/middle- income occupiers who usually prefer the prime areas to consider the secondary suburban locations of Naguru, Mbuya, Bugolobi, and Muyenga among others. The influx of rent-seekers from prime areas to the secondary suburban locations has resulted in significant rental increases within these locations, consequently extending the city’s boundaries.

A notable example is the continuous rise in rental prices in the Kyanja neighborhood, which has led to the development of surrounding areas such as Kungu, Komamboga, Kitetika, Lutete, and others. H2 2024 saw a continuation of the high-density projects (flats and apartments) as seen in H1 2024.

Demand for prime office space remained consistent, with aver- age net rents at $16.5 and $15 per square meter per month for Grade A and Grade AB offices, respectively. Grade AB rents rose by 7%, reflecting a shift towards more cost-effective options. However, occupancy rates in prime commercial offices registered a slight 1% decrease despite ongoing demand.

Despite these averages, some landlords are achieving net rents as high as $18 per square meter in newly constructed buildings. These buildings, strategically located in the prime areas of Kololo and Nakasero, boast modern designs and finishes, along with ample parking facilities.

The Grade A rental rents held stable in comparison to the H2 2023 rates while the Grade AB rental rates experienced a 7% increase underscoring a shift among cost-conscious tenants seeking affordability without significant compromise in location or amenities.

In spite of robust demand, occupancy levels for Grade A and AB office properties experienced a slight decline, with vacancy rates increasing by 1% compared to H2 2023. This marginal drop is attributed to factors including business downsizing, the completion of NGO and government-funded projects, relocation to lower-grade spaces, office relocations from the CBD to the city suburbs, and market saturation in specific Grade A segments.

In the second half of 2024, there was a noticeable increase in demand for office space outside the Central Business District (CBD), particularly among startups, services and financial sector firms. This shift is driven by a strategic preference to be closer to their customer base, as these locations are where many of their clients reside and conduct business.

Notable office projects in the pipeline include, Pension Towers, Speke Business Park, Plot 5 Luthuli Avenue, Saddler View Office Park, IGG Building, Twed Heights and JLOS House.

The retail sector remained resilient in H2 2024 supported by new market entrants and expansions of existing retailers boosting occupancy growth. Nevertheless, foot traffic fell by 5%, indicating shifts in consumer shopping habits.

On an annual basis, average turnover within the general grocery retail category increased by 2.8 percent, occupancy levels across Knight Frank-man- aged malls increased by 1.72 percent, rising from 80.7 pc in H2 2023 to 82.4 pc in H2 2024 while average footfall figures de- creased by 5% percent.

These mixed indicators—rising turn- over and occupancy alongside declining footfall—suggest a nuanced shift in consumer behavior. While increasing occupancy and turnover figures point to consistent consumer demand, the decline in footfall figures suggests that some consumers have changed their shopping patterns.

The continued development of neighborhood malls within the Greater Kampala Metropolitan area has likely contributed to the decline in footfall observed in Kampala’s larger retail malls.

Smaller malls offer increased convenience for local residents due to their proximity to residential areas, reducing travel time. However, these neighborhood malls typically offer limited parking capacity and a less diverse tenant mix, primarily featuring local retailers with limited presence from international and regional brands.

The industrial sector remained stable, with rental rates consistent with those in H2 2023 and occupancy levels above 80 pc. There was an increased uptake of warehouse space, particularly from SMEs, start-ups, and businesses establishing distribution centers. Additionally, there was also a rise in demand for industrial properties, particularly for land within proximity to the CBD.