Kampala Market Update H1 2019
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UGANDA MARKET UPDATE RESEARCH H1 2019 RESEARCH KAMPALA MARKET UPDATE H1 2019 Canaan Apartments, Kitante Close ECONOMIC UPDATE SECTOR BY SECTOR 2019 OUTLOOK ANALYSIS HIGHLIGHTS KAMPALA MARKET UPDATE H1 2019 Annual headline inflation rose June 2019, up from -5.4% registered to 3.4% in June 2019. Inflation for the year ended May 2019. This rise was on account of a -12.2% year Bank of Uganda maintained Annual headline inflation increased to on year increase in prices of fruits for the Central Bank Rate (CBR) 3.4% in June 2019 from 3.3% recorded the year ended June 2019. Overall, at 10% in H1 2019. during the year ended May 2019. The the annual change in prices of goods increase in annual headline inflation and services averaged 3.15% for the Ugandan shilling appreciated was largely attributed to the annual period January-June 2019 compared core inflation rate, which increased to to 2.12% recorded for the same period year on year by 2.9% against 4.9% for the year ending June 2019 the US dollar in June 2019 last year. compared to the 4.6% registered for The developments in inflation for the the year ended May 2019. Food Crop last 12 months are illustrated in Loans to the real estate prices rose to -3.7% for the year ended [Figure 1] sector increased by 14.2% Figure 1: year on year in May 2019. Inflationary rate developments as at June 2019 20 Uganda’s economy is projected to grow to 6.1% for 15 FY 2018/19. 10 ) Occupancy rates in prime 5 residential suburbs of 0 Kampala increased by 9%. annual rate (% Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 -5 Office market registered a 2% year on year growth in -10 occupancy in H1 2019. -15 Month Shoprite opened at The HEADLINE CORE EFU FOOD CROPS Bugolobi Village Mall, on the Source: Uganda Bureau Of Statistics 5th April 2019. UGX and USD denominated loans Money Markets respectively for the period January-May 2019. Year on year, yields on treasury The central bank maintained the key bills declined to 10.06% and 10.26% lending rate (CBR) at 10% during in June 2019, down from 10.16% and H1 2019, given that the inflationary 11.19% registered in June 2018 for forecasts were stable in the short 182 and 364-day tenors respectively, term albeit accompanying risks were reflecting a year on year increase in elevated. Commercial bank interest demand for government securities. rates were recorded at a weighted Fig 2 shows the money market trends average of 20.31% and 7.09% for in H1 2019.[Figure 2] Figure 2: Money market trends for the period June-2018 to June-2019 25.00 20.00 15.00 % taes r Interest 10.00 5.00 0.00 Month Lending rate (UGX) Lending rate (USD) Central Bank Rate Treasury Bills (182 days) Treasury Bills (364 days) Source: Bank of Uganda The period “H1” refers to the calendar period 1st January to 30th June | Q1 refers to 1st January – 31st March and Q2 refers to 1st April – 30th June. 2 Exchange Rates US$ 29.5 billion. In terms of sector growth of 7.2%, 5.8% and 3.8% contributions, services, industrial and growth during FY 2018/19 agriculture sectors registered positive [Figure 5] On an annual basis, the Uganda shilling appreciated against the US Figure 3: dollar by 2.9% to an average of UGX UGX vs USD exchange rate trends for the past 12 months 3,729.0 per USD in June 2019 from an average of UGX 3,840.5 per USD recorded in June 2018. Monthly, the UGX appreciated by 1.0% against the USD from a monthly average of UGX 3,765.6 in May 2019. For the period January-June 2019, the UGX slightly X depreciated against the USD by an UG average of 0.1%. The depreciation pressure for the period January- May 2019 is largely attributed to the high demand for foreign currency for imports on account of high trade activity. [Figure 3] Month Private Sector Credit to the Real Estate Source: Bank of Uganda Sector Figure 4: Breakdown of loans extended to the private sector as at May 2019 Credit advanced by commercial banks to the real estate sector comprising building, mortgage and construction Property Developers, Estate Agents and Le g Agents increased by 14.2% year on year to 33% Mortgage approx. UGX 2.9 trillion recorded in 43% May 2019. The annual growth in credit extended to the real estate sector can be attributed to an improvement in asset quality as evidenced by lower non-performing loans, with the ratio of Non-Performing Loans to total loans Specialised Contractors (NPL ratio) recorded at 3.82 in March 3% 2019 compared to 5.30 registered Land Purchase during the same period last year. 4% General Construc on Contractors It’s important to note that the mortgage 16% Road Construc on and Mantainance subsector accounted for approx. 43% 1% of the private sector credit disbursed Source: Bank of Uganda by commercial banks as at end of May 2019. [Figure 4] Figure 5: GDP growth and Per Capita at constant 2009/10 prices ECONOMIC 840 7.0% 825 6.2% GROWTH 820 6.1% 6.0% 5.2% 800 800 5.0% 4.8% According to the 2019/20 budget ) 780 774 4.0% 3.9% Speech, Uganda’s economy was 767 760 3.0% projected to grow by 6.1% in the 751 Econ. growth % Financial Year 2018/19. The key GDP per capita (USD 740 2.0% drivers for the economic growth were; increased private and public sector 720 1.0% activity, the stability of the global 700 0.0% economy and improved weather 2014/152015/16 2016/172017/18 2018/19 Financial Year conditions. The size of Uganda’s economy was recorded at approx. GDP per capita (US $) growth rates (%) Source: Uganda Bureau Of Statistics 3 On the other hand, Knight Frank houses in H1 2019. Above all, the RESIDENTIAL Research registered a 5% decline overall supply-demand disequilibrium in average rents for 3-bedroom of apartment units led to an average Occupancy rates for prime residential apartments from USD 2,900 recorded annual decline of 3% and 4% in sales suburbs of Nakasero, Kololo, Naguru, in H1 2018, down to USD 2,750 in prices for 2 and 3-bedroom units Mbuya and Bugolobi increased from H1 2019. This is mainly attributed to respectively in H1 2019. [Figure 6] 69% recorded in H1 2018 to 78% in supply outstripping demand for 3-bed H1 2019. Knight Frank also recorded units. Demand for modern stand- a 7% increase in rents for 2-bedroom alone houses in the prime residential apartments from an average of USD suburbs also increased for the period OFFICE 2,100 registered in H1 2018 to USD under review. This, coupled with the 2,250 in H1 2019. This is due to demand fact that the majority (90%) of existing The Kampala office market registered outstripping supply as evidenced by an detached houses are old and due for a 2% growth in occupancy from increase in expatriate accommodation refurbishment led to a 14% year on H1 2018 to H1 2019. This growth is for singles and couples for 2 –bedroom year increase in rents for stand-alone mainly attributed to a 3% increase units. in occupancy rates for Grade B+ buildings from 78% registered in H1 Figure 6: 2018 to 81% in 2019. The increase Average residential rents and occupancy rates in prime residential areas in occupancy of Grade B+ properties is on account of tenants taking advantage of a soft office market at present to drive harder bargains for lower rentals, particularly for less prime properties. Other key drivers of office take-up include good location and accessibility, ample parking, space configuration and functionality, professional property management services as well as the quality of services and facilities at the - properties for rent. Knight Frank recorded a 1% increase in occupancy rates for Grade A properties from 92% registered in H1 2018 to 93% in H1 2019. The addition of Source: Knight Frank Research approx. 18,000 sqm of Grade A lettable space in H1 2019 is expected to have a negative impact on occupancy rates for Grade A space in the second half of Figure 7: 2019 if existing supply does not meet Average residential sales prices in prime residential areas of Kampala demand. Whereas office take-up has seen some upward movement over the last 6 months, in H2 2018, a number of Grade A and B+ buildings experienced USD 1,000,000.00 vacancies from government agencies USD 900,000.00 and a few multinational companies USD 800,000.00 that moved into owner-occupied USD 700,000.00 built to suit premises. This increased USD 600,000.00 the available supply of space on the USD 500,000.00 market, mainly in the grade B+ and USD 280,000.00 B office type, further increasing the USD 400,000.00 bargaining strength of prospective USD 300,000.00 tenants. This, in turn, led to a 5%-10% USD 200,000.00 decrease in achievable rents. USD 100,000.00 2 USD 0.00 Approx. 11,000 m of office space was leased in H1 2019, with legal services, logistics, tour & travel and insurance Source: Knight Frank Research firms accounting for 20%, 20%, 12% and 12% of the space leased respectively.