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. The current trend Location US $ per sqm of corporate tenants and government Tier 1 (Kololo, Nakasero, Naguru, Bugolobi & Mbuya) $198-$618 parastatals moving into their own built Tier 2* (Ntinda, Luzira, Mutungo, Munyonyo & Muyenga) $47-$68 to suit buildings will have an adverse effect on office space, by increasing Tier 3* (Namugongo, Najjera, Naalya, Kira & Kyanja) $27-$58 the supply of vacant stock on the market in the short to mid – term. Prime *prices usually quoted in UGX and thus susceptible to foreign exchange volatility office yields remained stagnant but Source: Knight Frank Research attractive at 10% and 11% for Grade NB: These figures vary depending on the exact location, accessibility and land tenure system A and Grade AB buildings respectively. [Table 4] Table 4: Average prime office rents excl. S/C and VAT With regards to Occupier Services, it is becoming increasingly evident that the Grade Price per sqm/month Kampala office market will continue to be driven and defined by goals and Grade A $14-$ 16 objectives which tenants are intent on Grade AB $8-$13 achieving. The most important being cost reduction and strategic alignment between real estate and wider Source: Knight Frank Research business aims. Flexibility, productivity and increased efficiency from both the occupiers and the use of space are top of the list for most corporate office occupiers. Changing tenant
4 UGANDA MARKET UPDATE H1 2019 RESEARCH
expectations (particularly with start - ups and the younger more mobile freelance entrepreneurs) with regards to their space requirements are leaning towards, co-working space through shared offices.
Co-working is a business services provision model that involves individuals working independently or collaboratively in shared office space. Shared offices are becoming more attractive options for occupiers because they allow flexibility to grow or downsize, eliminates many of the real estate responsibilities for the tenants therefore freeing time for them to concentrate on their core business, Source: Knight Frank Research and reduces the capital tied up in IT, property and business administration. The redevelopment of these areas was Across the region in general and RETAIL SECTOR undertaken to ease traffic congestion Kampala specifically, occupiers are on both Lugogo Bypass and Shoprite/ becoming increasingly mindful of Jinja Roads. Phase one of the occupancy cost escalations which The second half of 2018 has seen a refurbishment was completed in time remains a critical concern for most consolidation of retail in the Greater for the traditional Black Friday sale that tenants. The increasing risk of Kampala node after the erratic trading was held at the end of November and economic uncertainty, reduced market performances of the previous two and for the opening of the 8th Café Javas share and revenues and general a half years. Retailers have reported store in Uganda. slowdown in trade and commerce significant growth over the period and for most businesses, have driven the majority of Malls under Knight Café Javas is a phenomenally corporate tenants to look at ways of Frank management have bedded down successful Ugandan homegrown optimizing their spatial requirements exceptionally well since the launch and brand of world class standard, which and efficiencies as a solution to opening of new anchors in them. has now expanded into the Kenyan reducing their occupancy costs. market by opening two stores in Acacia Mall showed footfall growth Nairobi. The opening of Café Javas Given our track record as the region’s averaging 15% for the period under at Lugogo Mall was well received by leading property firm, Knight Frank has review. Victoria Mall in Entebbe the primary catchment market of this the expertise and proven ability to be currently has the highest footfall per neighborhood and has added to the a trusted advisor to property investors square meter of gross leasable area of leisure and dining options available at and occupiers which will enable both any mall in East Africa, at 41 people/ the development. parties achieve their objectives through sqm/month, subsequent to the new bespoke strategies and solutions to anchor opening in June 2018. It is Black Friday sales in November the demands of the ever evolving followed closely by Acacia Mall at 17 were hosted in 4 of the Knight Frank office market. Our strong networks people/sqm/month. managed malls, and this saw record and longevity in this market enables us turnovers for retailers that got involved to quickly identify and understand the Victoria Mall has shown footfall in the promotion resulting in Malls occupier’s requirements, which we are growth in excess of 109% per month registering record footfall days on the able to address given the size and scale establishing itself as the “go to” venue 23rd November, 2018. The concept of our commercial property portfolio of for both consumers and retailers in the of Black Friday has been positively assets under management. Our global south eastern location of the Greater embraced by consumers, and the footprint also means that we are able Kampala node. The performance excitement and plentiful bargains to enhance the symbiotic relationships of these Malls subsequent to the attained by all has ensured that this between global property investors replacement of the anchor tenant by concept will grow from strength to and occupiers by creating the perfect Knight Frank, bodes well for firstly, strength and will be hosted in all Knight Village Mall which will see Shoprite opportunities for the development th Frank Malls in 2019. of intelligent and flexible buildings to open their 5 store in the country, in the match the specific demands of the first quarter of 2019. The latter half of 2018 saw the demise modern office occupier. of Deacons Group in Uganda. Shoprite Lugogo Mall which is also The Kenyan based master franchisee managed by Knight Frank, saw the of numerous international fashion start of an upgrade to entrances, exits brands experienced trading setbacks and parking in this half year period.
5 Table 5: and challenges in its home market, and Prime Retail Rental Rates in Kampala this spilled over into Uganda, seriously impacting on their ability to trade due Size Rates to poor and insufficient stockholding. <10m2 $200 <50m2 $48 Century Fashions, MRP’s Tanzanian <100m2 $28 based franchisee was awarded the <500m2 $23 franchise for Uganda and the stores >500m2 $20.00 re-opened and re-stocked in late July >1000m2 $14.50 with new clothing ranges. MRP will be expanding their footprint in Kampala Source: Knight Frank Research with the opening of The Arena Mall in March 2020.
Table 6: Knight Frank research registered Average passing industrial rents per sqm increasing enquiries for retail space across various retail malls in general Area Average Rents Per Sq. m per in H2 2018. The majority of inquiries month came from international based retailers Traditional Industrial Area/Ntinda $5.50 - $7.00 specifically in the fashion sector, which bodes well for consumers and Luzira Industrial Area $5.00 - $6.00 developers alike as we head into 2019. Namanve Industrial Area $3.50 - $4.00 Retail rental rates have remained stable Source: Knight Frank Research in the past half year and market related rentals in malls.
Warehouse, Plot M467, Hankook Road, Industrial Area Ntinda
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. 6 UGANDA MARKET UPDATE H1 2019 RESEARCH
registered a 4% annual increase INDUSTRIAL in the take up of new warehouses VALUATIONS The industrial sector continues to (warehouses built in the last 1-3years) The November 2018 performance of be dominated by owner occupied compared to the older stock of the economy report released by the property, and speculative development warehouses. This move has been Ministry of Finance, Planning and of warehousing space for rent. The driven by factors like the modern and Economic Development revealed KIBP continues to develop steadily, high-quality specifications that the new 2 that the outstanding month on month and is now taking shape as an industrial warehouses offer. Approx. 26,000m stock of private sector credit reduced park of note. There also seems to be was leased in H2 2018 compared 2 by 0.1% in October 2018 compared increased development of industrial to 24,960 m recorded for the same to September 2018 due to successful space along Jinja Road up to Mukono period last year. 90% of the leasing loan repayments that offset the and beyond, which has had a positive activity was recorded in the traditional increase in new credit extensions. impact on land values for well located, industrial areas of Ntinda, Port Bell st th encumbrance free land. Road, 1 - 8 Street, Luzira. Average occupancy rates for the newer stock of Our numerous discussions with various banks and financial institutions Knight Frank research recorded a slight warehouses was at 95% whereas the revealed that, despite the existing (5%) year-on-year decline in rental older stock sat at 49%. appetite from borrowers for financing, rates for warehouses in the traditional banks are not as bullish about lending, industrial areas of Ntinda, Luzira, Going forward, we anticipate an and are keener on streamlining their Bugolobi and 1st - 8th Street. This was increase in demand for warehousing loan books with a view to minimizing mainly due to supply outstripping space in the next 12 months as the non-performing loans. This is being demand as some companies’ volume of goods produced by the done through “health check” re- continued to relocate to smaller manufacturing sector in the economy valuations and peer reviews. premises. Additionally, we registered is projected to increase as evidenced an overall 5% year on year reduction by a 3.6% quarter on quarter increase The valuation practice in Uganda is in occupancy rates from 77% in H2 recorded during Q1 of 2018. Likewise finally coming of age thanks to the 2017 to 72% in H2 2018 on account with projections of increased economic Institution of Surveyors of Uganda of large corporations who moved from growth, increased trade and imports (ISU), and the Regulatory body of the rented to owner occupied premises. of consumer goods should translate profession, The Surveyors Registration This trend is likely to continue for the into demand for storage and logistics Board (SRB) who have advocated and mid – short term. space, boding well for this sector of the indeed pushed for the full adoption On a positive note, Knight Frank property market. [Table 6] [Figure 5] and implementation of International Valuation Standards (IVS) as the Figure 5: guiding principles of valuations in Quarterly trends for Index of production 2015-2018 Uganda.
This will not only build confidence and public trust in the profession which has suffered its fair share of bad publicity over the past few years, but also promote transparency and consistency in the valuation practice.
Source: UBOS
7 COMMERCIAL BRIEFING For the latest news, views and analysis of the commercial property market, visit knightfrankblog.com/commercial-briefing/
particularly in areas surrounding OUTLOOK FOR H1 Greater Kampala. UGANDA We envisage steady but slow Judy Rugasira Kyanda 2019 improvement in office leasing activity, Managing Director mainly driven by relocations from older +256 414 344 365 According to the December 2018 to newer buildings, but also take up [email protected] monetary policy statement released of office space by large corporations by Bank of Uganda, economic activity and organisations within the financial RETAIL is projected to grow steadily over the sector e.g. Afriexim Bank who will be Marc Du Toit next 12 months above the previously opening their regional headquarters Head – Retail Property Management projected figure of 6%. The increase in in Kampala in 2019. Performance of + 256 414 344 365 economic growth in 2019 is expected the residential rental sector continues [email protected] to be driven mainly by a higher private to be dominated by demand from sector credit extension thus spurring expatriates in the mid-level rental range VALUATION domestic consumption, multiplier where the “sweet spot” is between Arafat Katugga effects of public infrastructure $1,500 - $2,000. Strong retail sector Head - Valuation investment as well as improved performance continues to be driven by +256 414 341 391 agricultural productivity. Completion of the fashion, food, entertainment and [email protected] on-going road infrastructure projects leisure offerings at the malls in support around Kampala coupled with the of Kampala’s reputation as a strong AGENCY Sharon Kamayangi burgeoning middle class is expected to consumer driven market compared to Head - Agency increase demand for home ownership other east African cities. +256 414 341 391 [email protected] Crested Towers, Kintu Road, Kampala CONSULTANCY Francis Bbosa Research Analyst + 256 414 344 365 [email protected]
Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organizations, corporate institutions and the public sector. All our clients recognize the need for expert independent advice customized to their specific needs.
RECENT MARKET-LEADING RESEARCH PUBLICATIONS © Knight Frank Uganda 2019 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank Uganda for any loss or damage resultant from the contents of this document. As the general report, this material does not necessarily represent the view of Knight Frank Uganda in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Kampala Market H1 Africa Report 2018 Global Cities 2018 The Wealth Report Knight Frank Research. 2018 2018
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TheThe periodperiod ““H1HALF” refers 2016” to therefers calendar to the calendarperiod 1st period January 1st toJuly 30 toth 31stJune December | Q1 refers 2016 to 1 st| Q3January refers – to31 1stst March July – and30th Q2 September refers to 1andst April Q2 refers – 30th to June. 1st October – 31st December 2016.
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