Effects of COVID-19 on Commercial real estate in Kenya

Effects of COVID-19 on Commercial real estate in Kenya

The Coronavirus Disease commonly referred as COVID-19 pandemic, has hit the global economies hard and Kenya Government is doing its best to control further resurgence. Businesses are aleady hurt as most workers cannot go to their place of work as the government advised firms to consider making arrangements for staff to work from home. Most supply chain for both local items and imports has also been affected and most businesses are on the verge of collapse as the level of activities have gone down. No one knows how the pandemic will last and most businesses will be forced to start afresh.

The movements out of and into Nairobi metropolitan area has been restricted except on essential supplies for 21 days from 6th April 2020, and whether further measures will be introduced or not will depend on the impact which the measures helped curb the spread of the disease.

Once this is done, most companies are likely to downsize by reducing the number of the workforce, relocating to cheaper or smaller offices and embracing digitization as a way of cutting on costs. Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions.

This will see a lot of activity in commercial real estate as each business try to find the best strategy that suits them. Many companies will lay off employees and it will also take long for most companies to employ new staff. The high unemployment rate will force people to think outside the box and new businesses are likely to be formed. Several successful companies were formed during economic recessions including Apple, Microsoft etc, so it is likely that during this pandemic, some of tomorrow’s biggest employers are just getting their start.

Most new office blocks in Nairobi only have vacant offices spaces of not less that 1,000 sqft which are usually not less than ksh.120,000 per month. This is likely to change as most firms will want to move to cheaper offices and those office buildings are likely to partition their huge vacant office spaces to accommodate those with lower budgets.

Serviced offices are also likely to get a lot of demand as they offer convenient office environment where the clients can pay for one desk and chair and gets to work in a conducive environment complete with internet, boardrooms in case one has a meeting and other office essentials.

In the end, some companies will adapt and flourish while others will fade. Individual firms’ abilities to succeed after the pandemic will depend on how they respond to immediate challenges, particularly the current declines in short-term cash flow and the uncertainty on future ability to pay their bills. However, acting quickly and smartly will help determine the fate of businesses not only in these challenging times but also as the industry emerges from the current crisis and inevitably reinvents itself.

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