RESEARCH
UGANDA MARKET UPDATE H1 2016
ECONOMIC UPDATE SECTOR BY SECTOR H2 2016 OUTLOOK ANALYSIS UGANDA MARKET UPDATE H1 2016
Figure 1.0 Figure 2 QGDP at Constant 2009/10 Prices As Well As the Trends in the Monthly Average Exchange Rates for the Economic Update Percentage Change in QGDP Estimates. Period January-May, 2016. Uganda’s economy continued to grow 15,000 5.0 4.2664 in the current financial year albeit at a 4.1526 6000 3.8
11,250
2.5 4500 slower pace of 4.6% compared to a 5% 2.0531 2.0938 2.0519 1.9455 1.7992 1.6003 1.6163 1.335 1.1343 1.824 7,500 1.3 cent change
growth that was recorded in the financial Billion UGX US $ 0.5436
0.2561 Per 3000 Euro -0.0075 UGX 0.0 GDP 3451.2 3435.1 3365.5 3343.6 3364.5 year 2014/15. 3,750 -0.9592 -1.1295 -1.6057 -1.3 1500
00 -2.5 2011/12 2011/13 2011/14 2011/15 2011/16 Financial Year The decline in real GDP growth is 0 GDP at market prices Percentage change Jan-16 Feb-16 Mar-16 Apr-16 May-16 attributed to volatilities experienced Month Source: Uganda Bureau Of Statistics (UBOS) QGDP* = Quarterly Gross Domestic Product by the economy, which in turn affected Source: Bank Of Uganda and Uganda Revenue Authority various economic activities leading to low foreign direct investments in the country. Exchange rate Inflation The Ugandan shilling depreciated against Annual Headline inflation during the first These volatilities include strengthening of the US dollar by 2.6% to an average of half of 2016 remained within single digits, the United States dollar that affected the UGX 3,451.2 to the $1.00USD in January although slightly above the 5% policy Ugandan shilling, leading to depreciation 2016 from an average of UGX 3,362.5 target due to fluctuating food and fuel pressure which subsequently fed into to 1:00 USD in December 2015. The prices. The downward risk on inflation increased domestic prices, restricted Shilling depreciated in January mainly still remains the uncertainty of food lending as a result of high commercial due to a rise in demand for the US dollar prices which are heavily influenced by bank lending rates (in response to as businesses resumed in earnest after natural conditions such as heavy rains inflationary pressures that had a the December 2015 Christmas break, and drought. negative impact on private demand and speculation on the outcome of the and investment) as well as negative general elections in February 2016. Annual headline inflation for the year speculation and uncertainty in the run- ending May 2016 increased for the first up to the 2016 general elections which The shilling appreciated by 0.5% to an time since the start of the calendar year affected investment decisions. average of UGX 3,435.1 to $1.00 USD in 2016 to 5.4 percent from 5.1% recorded February owing to sluggish demand for in April 2016. This increment was largely Data from Uganda Bureau of Statistics the dollar characterised by low import on account of an increase in Annual Core revealed that in real terms, the size of the activity as well as the fact that the election Inflation due to a rise in other goods economy has grown by approximately period caused economic uncertainty with Inflation of 7.4% for the year ending May UGX 2.5 trillion from UGX 53.2 trillion companies cutting back on travel as well 2016 compared to the 6.7% increase last financial year to UGX 55.7 trillion as tourists staying away due to travel recorded during the year ended April in the current financial year. Drivers of advisories. 2016. growth include strong performance of the services sector which grew by 6.6 % Overall, the shilling has been stable Figure 3 Uganda Headline and Annual inflation rates for 3 majour from 4.5% recorded last financial year. against the US dollar due to tightening components,Jan-May:(2009/10=100)
of the monetary policy by the Central 14 The main contributors to this sector’s Bank which in turn constrained domestic 10.5 7
growth were transport and storage as well demand and consequently has impacted 3.5 % change as accommodation and food services on demand for foreign exchange for 0 sub sectors that grew to 7.7% and 6.9% imports. -3.5 -7 Jan-16 Feb-16 Mar-16 Apr-16 May-16 from 6.2% and -0.1% respectively. The Months th Headline inflationC ore construction sector grew from 2.5% to As of June 6 , 2016, the shilling had Energy, Fuel and Utilities Food crops 5.7%. Despite a slow-down in growth for appreciated by 2.4% to an average of Source: Uganda Bureau Of Statistics FY 2015/16, this represents a credible 3370 per USD from an average of UGX performance which is significantly 3,451.2 per USD at the end of January Inflation across the East African higher than the 3.2% and 3.4% growth 2016. Region projected for the world and Sub-Saharan Annual headline inflation remained with in Africa economies respectively in 2016. single digit figures across all countries in the East African region.
The period “HALF 2016” refers to the calendar period 1st January to 30th June 2016 | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June 2016.
2 UGANDA MARKET UPDATE H1 2016 RESEARCH
Table 1 This turn of events can neither shield the Figure 6 Annual Headline Inflation Rates for Selected EAC Trends of the whole construction sector index for the Countries. economy from shocks nor accelerate period Jan15 - Apr16 its rate of economic growth to higher Jan-16 Feb-16 Mar-16 Apr-16 May-16 levels of prosperity. It also stifles home 240 Uganda 7.70 7.70 6.20 5.10 5.4 ownership and property development. 235 230
Kenya 7.78 6.84 6.45 5.27 5.0 end s 225 Index Tr Tanzania 6.50 5.60 5.40 5.10 5.2 Figure 5 220 Commercial Banks Credit to the Mortgage, Land and 215 Rwanda 4.50 4.40 4.63 4.70 4.6 Real Estate Sectors in million UGX 210 5 6 15 15 5 16 16
Jan-15 Feb-15 Mar- Apr- May-15 Jun-15 Jul-1 Aug-15 Sep-15 Oct-1 Nov-15 Dec-15 Jan-16 Feb-1 Mar- Apr- Burundi 4.30 6.70 4.30 2.6 2.7 Year ending
Source: Respective National Statistics Bureaus 800,000 Source: Uganda Bureau Of Statistics Interest Rates 600,000
Bank of Uganda maintained the Central 400,000 Despite a notable construction boom UGX Millions Bank Rate (CBR) at 17% during Q1 of evidenced in the Ugandan economy 200,000 2016, given the inflationary forecast and since 2006, we envisage a negative
00 accompanying risks. In April 2016, Bank Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 impact on this sector during the second Month of Uganda reduced the CBR to 16% and Residential Mortgages Commercial Mortgages half of 2016 as a result of the proposed Energy, Fuel and Utilities Property Developers, Estate Agents and Letting Agents maintained this through to May as a result higher taxes on cement. of the improvement in the inflationary Source: Bank Of Uganda outlook. The same rate was maintained With an aim to boost revenue in FY for the month of May 2016. At the end of March 2016, the outstanding 2016/17, Government of Uganda has stock of Private Sector Credit (PSC) from proposed that excise duty charged on a The impact of the high CBR has also commercial banks towards Real Estate 50 kilogram bag of cement is to be raised been reflected through higher domestic activities amounted to UGX 2.6 trillion. from UGX 500 ($0.15) to UGX 1,000 ($0.29), lending rates that fluctuated between This is a 0.5% increment compared to which could raise market prices, depress 24% - 25%. Interest rates remained high February 2016. This marginal growth is consumer demand and slow down the but relatively stable, with short term (6 mainly attributed to a 1.65% increase pace of private property development. months) Treasury Bills at 16.08% and in amounts borrowed for commercial commercial bank lending rates at 24.29% mortgages. Majority of the lending from during the first half of 2016. commercial banks is for home loans and Residential property development. Figure 4 We registered an increase in the number Central Bank (Lending) Rate and the Seven Day Interbank of properties which came onto our Rate as at June 1st, 2016 The Construction Sector Annual changes reveal that the input books for sale in Q1 & Q2 2016. These prices for the whole construction sector properties are mainly in the greater that includes material prices, wage rates Kampala Metropolitan areas of Kira, and equipment hire rates increased Naalya, and Najjera which are becoming by 6.7 % in the year ending April 2016 increasingly popular for middle income compared to the year ended April 2015 home owners. as shown in Figure 6 below. This increase Land tenure in these suburbs also tends was attributed to a 16.4% rise in prices of to be “Private Mailo” which is considered inputs for residential buildings and a 6.8 an advantage for many home buyers who % rise in input prices for non-residential believe mailo tenure is in perpetuity, and buildings. is generally considered a “safer” tenure to have, as opposed to leasehold titles. On the other hand, monthly changes in input prices for the whole construction There has been a noticeable decline in sector showed that there was an increase sales activity in the high end residential of 1.3 % in April 2016 compared to a 0.2 sales market during Q1 & Q2 2016. Source: Bank Of Uganda % reduction in March 2016. The increase Marketing periods for prime property are Private Sector Credit to the Real in April was due to increases in prices of taking much longer to register interest Estate Sector cement, PVC pipes, burnt clay bricks, from potential buyers, and there are Commercial Bank lending rates remained steel bars and wage rates. few buyers with the capacity to close high, ranging from 18% - 24% on deals at asking prices. This has led to Uganda Shilling mortgages, which has a downward correction in the market slowed down private sector borrowing, prices of approximately 10%– 15% being and crowded out private investments. achieved in sales prices.
3 The reduction in sales activity was mainly Asking rentals were between USD 11– 15 signs of tangible and actual recovery due to uncertainty and speculation during per square metre per month while grade with demand from private sector tenants the pre and post general election period. B offices fetched an average of between towards the end of 2016. However, take That said however, sales that have been USD 8 - 10 per square metre per month. up is still slow, occupancy rates are still concluded, were at discounted prices, as The average selling price per sq.m for above the desired level, and renewed buyers take advantage of the ‘bearish” prime office space was between USD rents are below passing rents in current market performance over the past 24 1,400 – 1,600 per sq.m. running leases. months. Table 3 The prime office pipeline is active with Prime commercial rentals There has been a noticeable increase in developments like Rumee Towers along inquiries for commercial and residential Property Type Yield Rate per sq.m Lumumba Avenue, and Lotis Towers investment properties to buy from both Grade A 10% $15 – $16.5 along Mackinnon Road, to name but a the local and expatriate community. This Grade B 8% $8 – $10 few. The impact of the recent change
is a sign of recovering investor confidence Source: Knight Frank Uganda in the tax regime with regards to prices as the perceived immediate threats or of construction inputs such as cement aftermath of the election violence are Grade A buildings maintained an average is likely to have some sort of impact on considered to have passed. occupancy rate of approximately 80% construction costs moving on. In addition, the period of March-May while Grade B buildings had lower 2016 saw an increase in demand for occupancy levels averaging at 60% over We are hoping that once oil production short stay accommodation as opposed the past 6 months. These occupancy and pipeline construction dates are to the long leases. Over 80% of the rates are slightly higher than those certain, there will be increased demand inquiries received during this period were recorded during the same period last for office accommodation from the oil from clients who were looking to stay for year. Demand for Grade A space has and gas sector and related services a period of 2 – 4 months. continued to be driven by Government which will reduce vacancy rates, and agencies, financial services sector, stabilise rentals somewhat. Table 2 Prime residential rentals especially the insurance sector and credit finance companies that are growing and Description Rental Charge need more space as a result. Retail 5 bed furnished detached houses $4,000 - $5,000 on 1.00 acre plots The retail sector has been rather 4 bed furnished detached houses $3,000 - $4,000 New office stock in prime secondary on between 0.50 – 1.00acre plots. commercial locations of Bugolobi, subdued compared to the same period 3 bed furnished town houses (in a $2,500 - $3,000 last year. We have witnessed a number gated community) Nakawa, Bukoto and Nakasero, have of retail tenants (particularly in secondary 3 bed serviced apartments $2,500 - $3,000 exerted downward pressure on core locations) requesting to have their rents 2 bed serviced apartments $1,850 - $2,500 CBD office properties. The latter sector has not been performing well because paid in local currency in order to curb Source: Knight Frank Uganda most of the stock is old, with limited and the dollar fluctuations. Retail tenants expensive parking, and traffic congestion have also generally registered slow sales Office in these locations. Rents have stagnated, during the first quarter of 2016 compared or in most cases, are being negotiated to the same period last year. The office sector has been the hardest downwards. hit of all the property sectors over the In addition, retailers are putting pressure past 24 months, and saw prime rents As observed in the last quarter of 2015, on the property owners to give them falling to as low as $12.00 per sq.m in the demand for smaller office spaces .i.e. capped rentals to enable them forecast some properties. The Kampala outer (50–70 m2) by firms who do not need actual sales with a degree of certainty. CBD locations of Kololo and Nakasero, big space (i.e consultancy and logistics This is obviously not ideal for landlords and other prime suburban office firms,) yet need proximity to their clients whose financial obligations are in foreign locations of Naguru, Bugolobi, Nakawa in the corporate sector, continued to currency (US$). and Bukoto have been the focal points gather momentum in the prime office of office development over the past 2 locations of Nakasero, Kololo, Naguru However the ministry of Finance issued th years, and this trend is likely to continue and Bugolobi. a directive on the 15 January 2016 as key demand drivers of commercial warning accounting officers against office space look for premises out of the Approximately 20,000 m2 of prime awarding government contracts in foreign congested CBD area, where land prices commercial (Grade A / AB and B) currencies, in a bid to help stabilize the are also considered extortionate. office space was leased during the first Shilling against the dollar.This will result half of 2016. Most of this take up was in more predictable prices on contracts During the first half of 2016, yields for derived from Government Ministries instead of the price changes that occur office space remained stable ranging and Parastatals. We are of the opinion with the dollar fluctuations. between 9% and 10% for prime offices that the office sector will start to show Eventually, landlords will have to take (grade A) and 8% for grade B Offices. a stand on this matter, although it may
The period “HALF 2016” refers to the calendar period 1st January to 30th June 2016 | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June 2016.
4 UGANDA MARKET UPDATE H1 2016 RESEARCH
be beyond their control since their has expansion plans to penetrate the chemicals Ltd, Roofings (U) Ltd, Hima development finance is in US dollars. Ntinda market in the second half of 2016, Cement, Export Trading, Sadolin Paints, the branch located at Ntinda Complex and Kyagalanyi Coffee Ltd, to mention On the contrary however, the banking expected to be opened is targeting the but a few. Prime industrial rental rates sector which is usually a big demand catchment area of Ntinda, and secondary have stagnated at an average of $5.00 - driver for retail units, has witnessed catchment areas of Kiwatule, Nakawa, $7.00 per square metre for properties in slow activity in the first half of 2016. Bukoto, Kisasi and Naalya. the core / traditional industrial areas, and Banks expansion efforts have been slow, $5.00 -$6.50 per square metre for newer, concentrating more on growing their ATM Sportswear Company Adidas more modern warehousing premises in outlets. Banks are also leaning towards commenced fit-outs at the end of April secondary industrial locations of Nakawa, having the existing branches operating at Acacia mall with a target opening date Ntinda, Luzira, Namamve, Banda, and out of standalone units and instead in Q3 of 2016. The fact that one of the Seeta. having their ATMs in the shopping world’s biggest manufacturers, retailers centres. Likewise, branches are also and brands, Adidas is set to open a store being opened and maintained in the in Kampala shows the confidence that Valuations shopping centres, for example Standard the international brands have developed Chartered Bank who opened a wholly in our market which will be a catalyst in Overall, the Bank lending rates remained automated branch on 12th February boosting the confidence of other affiliate high but stable (an average rate of 2016 with special features like the Cash brands to venture into the East African 24.5%) during the first half of 2016. Deposit Machine (CDM). and Ugandan market. There was a decline in bank lending activity for the first half of the year.
Table 4 And last but not least, Pizza Hut, a However, there is a noticeable increase in Prime retail rentals Multinational fast-food chain store valuation instructions and bank lending activity over the past 2 months, albeit for Description Rental Charge officially opened in Uganda at Village rd revaluation, as opposed to new loans. <10m2 $180 mall in Bugolobi on May 23 , 2016. The There is a correlation between house <50m2 $35 Imperial Mall in Entebbe is also set to open for business in the second half of purchase activity, and volume of valuation <100m2 $25 the year. instructions / bank lending activity, since 2 <500m $22.5 most buyers in the market are mortgage 2 >500m $18.5 purchasers. Prime Property values have Anchors $9 Industrial corrected in line with comparable prices Source: Knight Frank Uganda being achieved on the market, but middle Industrial rental property in the traditional income property values continue to st th The 18th February presidential and industrial areas (1 – 8 Street) and realise capital appreciation of between parliamentary elections had a minimal secondary industrial locations on the 2% - 5% per annum or at the very least impact on the retail sector. Overall, outskirts of the CBD like Banda, Ntinda, held their values. Again, this mirrors there was an average decline of 1% in Nakawa and Kyambogo have also the increased interest and demand for the footfall to malls managed by Knight experienced low occupancy rates and middle income housing over the first half Frank Uganda from January to February take up over the past 6 months. This is of the year. 2016. This is attributed to the post and partly attributed to supply of warehousing pre-election negative speculation that space outstripping demand, and a That said, we are also noticing an was experienced before and after the slowdown in the trading of imported increase in properties which are being elections. The average daily traffic goods and commodities which would auctioned or repossessed by various reduced by 2.1%, compared to Q2 and require storage space for distribution to lending institutions as a result of “bad” Q1 2016 figures due to the fact that neighbouring countries. loans. Our research also indicates that Easter fell in the month March which prices being achieved for this category accounts for the higher traffic instead of We are noticing increasing demand for of property whereby sales are restricted, April as is usually the case. relatively large warehousing space of and falling far below the expected late, although decision making process “restricted” realisation prices. The retail sector will continue to we realise and lead time up to occupation is taking more line shops expanding their business a few months. This demand is being One of the biggest deterrents of home alongside the emergence of startups derived from the logistics, transportation, ownership for mortgage buyers who are especially in the fashion industry. There and pharmaceuticals sectors. the majority of purchasers in Uganda, is are also a number of retail developments Development of factories and industrial unaffordable bank lending rates (22% - being built in and around the city suburbs. premises by owner occupiers continues 25%). This is also partly the reason why The Arena Mall, Nsambya is expected to in earnest at the KIBP Namamve, and loan repayments are not being met and break ground in the second half of 2016. some of the notable companies who property repossessions are increasing. East Africa’s leading retailer Nakumatt have recently completed their factories Especially where interest rates are not and taken occupation are Quality fixed.
5 COMMERCIAL BRIEFING For the latest news, views and analysis of the commercial property market, visit knightfrankblog.com/commercial-briefing/
may deteriorate over the next 12 Outlook for Q3 and months due to slowdown in emerging market economies especially due to UGANDA Q4 of 2016 China’s economic slowdown, which has Judy Rugasira Kyanda hurt commodity-exporting countries Managing Director It is strongly believed that the passing +256 414 344 365 by driving down demand for exports. of the amended financial bill that allows [email protected] Consequently, Uganda’s balance of banks to engage in agency banking, payments in the short to medium-term Islamic banking and bank assurance will RETAIL will remain vulnerable to the turbulences be a catalyst for increased economic Marc Du Toit in the global economic environment. activity over the next half of the year, Head – Retail Property Management + 256 414 344 365 through increased access to financing The property market is expected to [email protected] for trade and investment This initiative is pick up, but with caution since interest targeted at encouraging or onboarding rates remain high, the shilling remains COMMERCIAL the unbanked population (only 5 million weak, and demand for both prime office Moses Denis Lutalo Ugandans have bank accounts out of 14 and residential accommodation is still Head – Commercial & Residential million) in addition to providing a unique Property Management lagging behind supply. There are various financial product which is unique to this + 256 414 344 365 affordable / middle income housing market. [email protected] development schemes and satellite towns in the offing, and we believe this The supply / demand disequilibrium VALUATION will address and alleviate the housing for middle income and affordable Alfred Zaki deficit if the right product is built priced Head - Valuations housing remains high, as supply in the correctly. +256 414 341 382 prime residential segment runs the risk [email protected] of becoming saturated with limited Furthermore, we also envisage a decline demand to match in the short to mid - in new investments in the construction AGENCY term. Likewise, this will have downward Sharon Kamayangi sector during the second half of 2016 as pressure on prime residential rentals and Commercial Agency a result of the proposed higher taxes on increased voids. +256 414 341 391 cement. With an aim to boost revenue in [email protected] FY 2016/17, government of Uganda has The local currency remains highly proposed that excise duty charged on a depreciated by stable, and the slight CONSULTANCY 50 kg bag of cement is to be raised from Francis Bbosa reduction in fuel prices should have UGX 500 ($0.15) to UGX 1000 ($0.29), Research Analyst downward effect on food prices, but which could raise market prices, depress + 256 414 344 365 encourage discretionary retail spending. consumer demad and discourage new [email protected] The Central Bank projected that both investments. headline and core inflation would remain in the range of 6.5±% in the period of April - June 2016 before gradually declining to the medium-term target of 5% in the second half of 2017.
However, the property market sentiment remains bearish, with Bank of Uganda revealing that the economy
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The period “HALF 2016” refers to the calendar period 1st January to 30th June 2016 | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June 2016.