Kampala City is poised for an oversupply of office space in 2025, with the anticipated completion of major high-rise buildings such as Chint along Jinja Road, UDB, Ministry of Finance, and the Inspectorate of Government Offices, latest data from Knight Frank Uganda shows.
The Knight Frank Kampala Property Market Performance Review covering the second half of 2024 which was published yesterday shows other major office pipeline projects include the Pension Towers along Lumumba Avenue with over 32,000 square metres(sqm), Speke Business Park with 16,600 sqm, Saddler Office Park (Mixed) with 8,329 sqm, IGG Building opposite Garden City, Twed Heights in Kyadondo with over 13,310 sqm, and JLOS House at the Naguru Police Campus with over 60,040 sqm.
Over 100,000 sqm of office space are expected onto the market between the first and second half of 2025. The pipeline projects once complete will increase the office supply at a faster rate as compared to demand thus further increasing vacancies and lowering the rental levels as the market adjusts to the added capacity.
Furthermore, the government’s rationalization policy saw some Agencies abolished or combined while others returned to their mother ministries.
This is likely to have a negative impact on the performance of the office sector as some of the Agencies that were renting out office premises, will relinquish these spaces thus resulting in oversupply of office space.
However, Knight Frank notes that some pipeline projects continued to experience significant construction completion delays due to a number of reasons such as development finance constraints and delayed regulatory hurdles.
An overview of the office sector by Knight Frank shows Kampala maintained a steady demand for prime office spaces between June and December of 2024 with prime average rents recorded at USD 16.5 and USD 15 per square metre per month for Grade A and Grade AB, respectively.
Despite these averages, some landlords are achieving net rents as high as USD 18 per square metre in newly constructed buildings. These buildings, strategically located in the prime areas of Kololo and Nakasero, boast modern designs and finishes, along with ample parking facilities.
Despite robust demand, Grade A and AB office properties experienced a slight decline in occupancy levels, with vacancy rates increasing by 1% compared to the second half of 2023.
The marginal drop was attributed to factors including business downsizing, the completion of NGO and government-funded projects, relocation to lower-grade spaces, office relocations from the Central Business District to the city suburbs, and market saturation in specific Grade A segments.
The Landlords remained firm on implementing annual contractual escalations of 3% to 5%, as allowed under the Landlord and Tenant Act. Lease agreements typically ranged between 3 to 5 years, reflecting stability in tenancy among prime office spaces.
Demand for smaller office units (under 200 square metres) has persisted. The trend highlights an increasing preference for compact, cost-effective spaces among businesses adapting to hybrid work models and varying operational needs.
Parking availability remains a critical factor influencing building occupancy levels. Tenants continue to prioritize properties with adequate parking, making it a decisive factor in office space selection.
In the second half of 2024, there was a noticeable increase in demand for office space outside the Central Business District, particularly among startups, services and financial sector firms. This shift is driven by a strategic preference to be closer to their customer base, as these locations are where many of their clients reside and conduct business
This shift is further influenced by challenges such as congestion, traffic jams, noise pollution and limited parking within the CBD. Notably, there has been a surge in demand for residential stand-alone properties in Bukoto, Ntinda, Naguru, and surrounding neighbourhoods, which are being converted into office spaces.
These properties offer advantages such as enhanced privacy, ample parking, and proximity to residential areas, making them attractive alternatives to traditional office spaces.