UGANDA MARKET UPDATE RESEARCH H1 2019 RESEARCH KAMPALA MARKET UPDATE H2 2018 Cover Image: Trust Tower, Plot 5, Kyadondo Road, Nakasero ECONOMIC UPDATE SECTOR BY SECTOR 2019 OUTLOOK ANALYSIS HIGHLIGHTS KAMPALA MARKET UPDATE H2 2018 Inflation reduced to 2.2% in December 2018 2018. The reduction in food prices was Inflation predominantly due to a decline in fruits inflation registered at -13.2% for the The Uganda Shilling Annual headline inflation for the year year ending December 2018 compared appreciated by 0.7% against ended December 2018 declined to to -9.3% recorded for the year ended the USD in December 2018 2.2% from 3.0 % recorded for the November 2018. year ended November 2018. This is Increased demand for the lowest inflation rate recorded for Annual Core Inflation which excludes treasury bills the past 6 months since May 2018. temporary price volatility, declined to The decline in annual headline inflation 2.8% for the year ending December was driven by food inflation which Economy grew by 6.8% in Q1 2018 compared to 3.4% registered for declined to -5.0% compared to -3.3 % of FY 2018/19 the year ended November 2018. recorded for the year ended November [Figure 1] Bank lending instructions to Figure 1: Annual Inflation rates for the period Dec - 17 to Dec - 18 the residential sector reduced 20.0 Residential occupancy rates 15.0 in prime areas declined by 5% 10.0 Office leasing activity 5.0 3.8 % change 3.7 3.4 3.0 3.1 3.0 3.0 increased by 18% in H2 2018 2.2 2.1 2.0 1.8 1.7 2.1 0.0 Victoria Mall in Entebbe Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 registered the highest footfall -5.0 per m2 in East Africa at 41 people/sqm/month. -10.0 Month Food crops and Related Items Core All Items Index Source: UBOS Exchange Rates This translates to a 1.2% appreciation during H2 2018 compared to 0.6% The Uganda Shilling (UGX) appreciated depreciation registered during the against the United States Dollar (USD) same period last year (H2 2017). by 0.7% in December 2018. The UGX Uganda’s Ministry of Finance attributed opened the second half of 2018 trading the appreciation of the Shilling to higher at an average rate of 3,760.44:$1 in supply of the US Dollar due to inflows July 2018 and closed at an average to NGO’s, coffee export receipts and rate of 3,714.13:$1 in December 2018. offshore players in the Government securities market. [Figure 2] Figure 2: Average exchange rates for the period Dec - 17 to Dec - 18 3,900.00 4% 3,850.00 3.0% 3% 3,800.00 1.9% 2% 3,750.00 D 1.0% 1% 0.8% 0.6% 3,700.00 0.5% 0% UGX per US -0.1% 3,650.00 % monthly change -0.6% -0.7% -0.8% -1.0% -1% 3,600.00 -2% 3,550.00 -2.1% 3,500.00 -3% Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18Nov-18Dec-18 Month UGX Monthly change Source: BoU 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 Money Markets day tenors for December 2018 were recorded at 11.02% and 11.51%, down RESIDENTIAL from 11.47% and 11.61% registered During H2 2018, Bank of Uganda in November 2018 respectively. The SECTOR increased the Central Bank Rate (CBR) decline in yields was largely driven by by 1% to 10% in October 2018, a rate an increase in demand for treasury Knight Frank Uganda registered a that was maintained up to December bills. [Figure 3] 5% year on year decline from 86% 2018. This is higher compared to 9.5% to 81% in occupancy rates for the recorded during the same period last prime residential suburbs of Kololo, year, indicating a year on year higher Gross Domestic Product (GDP) Nakasero, and Naguru. Key among the cost of capital for the last quarter of drivers for this decline, is the fact that 2018 vis a vis Q4 2017. tenants opted for accommodation in GDP estimates for the first quarter of other suburbs where rents are slightly Commercial Bank prime lending FY 2018/19 indicate that the economy lower, and yet the quality of stock rates for the Uganda shillings rose grew by 6.8% compared to 6.9% available is newer and of similar if not to a weighted average of 20.51% in registered during the same period better quality than is available in the November from 20.37% in October, of FY 2017/18. The biggest driver of prime suburbs. whereas USD denominated lending this growth was from the services rates declined to a weighted average sector that registered a year on year H2 2018 also registered an increase of 7.99% in November from 8.70% in value added growth of 8.2% in Q1 of in new stock of prime residential October 2018. The upward trend in 2018/19, compared to an earlier growth accommodation, 85% of which were Uganda shilling lending rates followed of 8.0 % in Q1 the previous year. This apartment blocks. This is exerting a 1% increment in the Central Bank growth was driven by Trade & Repair, downward pressure of approximately Rate recorded from Q3 to Q4 of 2018. Public Administration, Education and 10% - 15% on rentals across the board The average weighted yields on Health activities. [Figure 4] in response. For example, average treasury bills for 182-day and 364- rents for prime two bedroom furnished Figure 3: apartments reduced from $2,250 to Average exchange rates for the period Dec - 17 to Dec - 18 $1,850 and unfurnished from $1,500 25.00 to $1,000. It is expected that approx. 150 housing units will come onto the 20.00 market over the next 12 months in 15.00 Kampala’s prime residential suburbs, rate % of which 90% are 3 bed apartment 10.00 units. Interest 5.00 Despite a 12% increase in the supply of residential housing stock, the 0.00 Dec-17 Jan-18 Feb-18 Mar-18Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 greater Kampala suburbs of Naalya, Month Kira, Najjera, Namugongo, Buwaate Central Bank Rate (CBR) 182 Days 364 Days Lending Rates (UGX) Lending Rates (USD) and Kitende that are dominated by Source: BoU mid-income residential properties registered a 2% year-on-year increase Figure 4: Quartery GDP at market price (Billion Ugx) in occupancy rates from 80% recorded 20,000 8.0 in H2 2017 to 82% in H2 2018. This 18,000 17,313 is in correction with justifying the 7.0 16,210 15,761 steady demand and requirement for 16,000 15,135 14,408 6.0 affordable housing given that demand 14,000 has been outstripping supply for the 5.0 12,000 past 5 years. 10,000 4.0 [Table 1], [Table 2], [Table 3] % change UGX Billions 8,000 3.0 6,000 2.0 4,000 1.0 2,000 0 - Q1 Q2 Q3 Q4 Q1 2017/18 2018/19 Financial Year GDP at market prices % y-o-y change Source: UBOS 3 Table 1: Average rents and sales in USD as of H2 2018 in prime residential areas of COMMERCIAL Kampala 2 bed Apartment* 3 bed Apartment* 4 – 5 bed Bungalows AGENCY AND (0.25-0.5 acres) Rent Sale Rent Sale Rent Sale OCCUPIER Tier 1 (Kololo, $1,850 $225,000 $2,750 $325,000 $3,500 $ 1million Nakasero, Naguru, SERVICES (OSCA) Bugolobi & Mbuya) Approximately 13,000 m2 of Grade Tier 2 (Ntinda, Luzira, $1,200 $120,000 $1,850 $180,000 $2,500 $250,000 A / AB office space in the core Mutungo, Munyonyo & central business district (CBD) Muyenga) (between Kampala Road and Yusuf *=furnished Lule Road) and prime periphery areas Source: Knight Frank Research ( parts of Kololo, Bugolobi, Nakawa, Bukoto) was leased during H2 2018 compared to 11,000 m2 in H2 2017. Table 2: This represents an 18% year on year Average rents and sales figures of Mid Income Housing in Kampala during growth in take up rates. There was H2 2018. a 2% annual increase in occupancy for Grade A and AB office space in 2 bed Apartment 3 bed Apartment 4 – 5 bed Kampala to 86% in H2 2018, from Bungalows 84% registered in H2 2017. (0.10-0.25 acres) We also noticed increased flexibility Rent Sale Rent Sale Rent Sale from landlords with regards to lease (Ugx) (Ugx) (Ugx) (Ugx) (Ugx) (Ugx) terms at renewal and new leases, in a quest to retain tenants, given the Naalya, Najjera, 700,000 120 1 160 1.2 250 Namugongo, million million million million million increasing supply of office space coming onto the market amidst Kitende, Kira, increasing economic uncertainty and Buwaate etc) shrinking profit margins across the Source: Knight Frank Research board for most businesses. It remains to be said however, that good quality, well located and managed office buildings continue to hold their value, Table 3: and rent reductions tend to be less Average land prices per sqm for specified residential suburbs (H2 2018) significant than the lower quality, older stock of properties.