Connect with us

Business News

Why Coca-Cola may accept lower bids for Upper Hill office block

Published

on

Loading...

Coca-Cola may have accept lower bids for the building that hosted its regional offices in Nairobi’s Upperhill area from which it has relocated from to the newly built 90 James Gichuru office in Lavington.

Cytton Investments says the main risk factors for investors in the building include the existing oversupply of office space, which stood at 4.7 mn SQFT in 2017 undermining the performance of the office sector and  traffic congestion along the key access routes to the  Upperhill area, Mbagathi Way and Ngong Road, which continues to discourage businesses setting up offices in the area.

“There is also unavailability of social amenities such as shopping malls in Upperhill, unlike other growing business nodes such as Westlands, Lavington and Karen. Given that the office sector is currently a buyer’s market, the seller is likely to accept lower bids for the building. The trend to exit Upperhill continues to gather pace after the recent exit by European Union and now Coca-Cola, this is mainly due to accessibility challenges in Upperhill,” according to Cytonn Research.

While announcing the decision to relocate from premises currently valued at Ksh 1.03 billion, Coca Cola general manager Ahmed Rady said it was in line with their Vision 2020 on workplace agenda.

“The new office location will allow the company achieve a new modernised space built to suit needs of a more agile, and even faster paced business,”  Rady said.

The 66,360 SQFT (6,165 SQM) office building in Upperhill, sitting on 4-acres of land, was constructed at a cost of Ksh 700 million about 10 years ago, which equates to Ksh 10,549 per SQFT. The current estimated price translates to a value of Ksh 15,521 per SQFT. This is 14.0% higher than the current market average price for office space in Upperhill at Ksh 13,386 per SQFT, according to Cytonn Research.

“We estimate that, at the current valuation of Ksh 15,521 per SQFT, a buyer would generate a 7.0% yield, assuming rental income at the current Upperhill market average of Kshs 100.0 per SQFT and occupancy of 90.1%. Given that commercial properties in Nairobi generate yields of 9.0%-10.0%, we are, therefore, of the view that the building may not be a good bargain at the proposed value. If the building is sold at the current market average price of Ksh 13,386 per SQFT, the exit value of the same would come in at Ksh 888.3 mn, and the buyer would generate a rental yield of 8.1%. To achieve a rental yield of 10.0%, at Upperhill average market rent and assuming 100% occupancy, an investor would buy at Ksh 12,000 per SQFT and thus the building would be sold at a value of Ksh 796.3 mn,” it says in its weekly brief.

Coca-Cola is seeking to sell or rent the premises.

 

 

Loading...

Source link

Loading...
Advertisement
Loading...
Loading...

Facebook

Loading...

Trending