Occupancy of commercial buildings in Kampala is in jeopardy because peoples’ spending power has reduced. These purchasing habits partly explain why the economy is declining. Christine Kasemiire finds out why there are many empty office spaces and how traders are coping.
New commercial structures are erected annually, built to shelter traders as they go about their businesses.
But who will occupy the skyscrapers in the midst of a low income population that trades majorly in mobile street locations where displacement is guaranteed?
While traversing Kampala city, you will cross paths with banners embedded on walls of buildings reading ‘For Rent’ which is an indication that despite the high number of new buildings raised, many old buildings remain empty.
According to the Uganda Bureau of Statistics (UBOS) report of 2016, the total number of plans submitted in 2015 was 6,539, representing a 47 per cent increase from 4,432 plans submitted in 2014, containing 2,146 commercial plans submitted up from 1,360 in 2013.
Of the submitted applications in 2015, 5,777 were approved, registering a 30 per cent increase in comparison to the previous year. The augmented number of active proprietors in the real estate sector was evidenced through the increase in cement consumption recorded by UBOS.
The report revealed the total net domestic supply of cement registered an 8.8 per cent increase in 2015 with 2,234 thousand tonnes from 2,053 thousand tonnes in 2014 while imported cement registered a 15 per cent decrease from 397 thousand tonnes in 2014 to 335 in 2015, justifying the increase in number of buildings set up since domestic supply is cheaper hence cutting cost of production.
According to the World Bank doing business report of 2017, the construction industry stimulates growth attracting sizeable investments and supporting supply chains, thereby generating employment and contributing to the process of capital formation.
It is responsible for 6 per cent of global GDP or a 5 per cent share of GDP in developed economies and contributes an 8 per cent share in developing economies.
Why buildings are vacant
Mr Anthony Katongole, a property broker at Amalgamation Property Consultants, said high rental fees especially those in foreign currency, poor geographical location of areas without market and high vendor figures explain the reluctance among entrepreneurs when choosing a place to rent.
Knight Frank Uganda market update of 2016 blamed the increase in price for input materials used in construction. Annual changes reveal that the input prices for the whole construction sector that includes material prices, wage rates and equipment hire rates increased by 6.7 per cent in the year ending April 2016 compared to the year ended April 2015.
The changes included; increases in prices of cement, PVC pipes, burnt clay bricks, steel bars and wage rates. Government in 2016 proposed to increase excise duty on a 50kg bag of cement from Shs500 to Shs1,000 which would have negative economic implications to the real estate sector such as heightened rent fees and low property development.
Presently, rent in a building in downtown Kampala ranges between Shs1 and Shs5m per month. A 2 by 2 square metre store in the new Nakivubo Mall opposite New taxi Park goes for Shs3m per month. However, rent fees vary depending on the location and facilities rendered by the landlord to the tenants.
Mr Katongole said criteria for rent prices are based on size and location of the structure.
Coping with rent
The traders are feeling the pinch.
“Banks! The banks lend us money that helps us survive the insufferable business conditions,” said an entrepreneur from Skylight mall in downtown Kampala who preferred anonymity. She said the rent in the buildings is outrageous to the extent that it prompted a strike for a week. She said they barely survive since rent is increased without notice or reason.
“A shop that was at Shs1.5m was increased by 30 per cent plus we have to pay Shs 300,000 for electricity every month yet we only use four bulbs of 75 Watts from 8a.m when we open to 6p.m when we close,” she said.
She decried vendors saying they encroach on their market yet she pays for licences and rent. She said vendors run into the building when KCCA officials approach and get away with it.
Seven shops in the top floor of the building were unoccupied and up for rent which she said was because people left and have yet to be replaced two months after.
She said, “We shall keep leaving when we fail to afford rent which is sad because youth come for employment in these shops and if we fail, they also lose their jobs subsequently increasing the number of unemployed youth in Uganda.”
When asked why he chose to rent in a store other than set up shop on the streets, the proprietor of Epic Styles store in the same mall, who chose to remain anonymous, said the shops are more secure from theft and damage unlike streets.
He recognised the high rates of rent in Kampala but said shop owners improvise by subletting with others at a discussed rate depending on the space given to the co-occupant.
He said getting a sub-letter is not easy especially in the earlier months. It only becomes easier towards end of the year since business booms during Christmas.
However, acknowledging the advantage vendors have of heavy traffic of consumers on the streets, he said other than that, he is not affected by them because they all trade for different markets.
“A person who buys goods from the street is not the same person who buys from us,” he said.
Mr Kenneth Semugenyi, a vendor opposite the new taxi Park, said he only vends because it is a cheaper alternative compared to renting a shop. He said he would like to rent in a shop but the high rent costs are discouraging.
“Currently, I pay Shs250,000 to work from here but shops in Kampala need about Shs600,000. We do not make enough money to incur such expenses and still survive,” he said.
Economics lecturer at Makerere University, Mr Fred Muhumuza, said the housing industry in Uganda flourishes because the people look at it as a guarantee for future profit.
He said housing is a money store value that Ugandans view as stable visa vie other sectors.
However, he said decline of occupation of commercial buildings has nothing to do with street vendors but the poor economy. He said stores and vendors have different markets that consume different products.
He said because the people are poorer, they seek cheaper alternatives by leaving commercial buildings to vending; thereby, catering to people who also need the cheap commodities.
Tenants, he says, should move to smaller places and suburbs other than operating mid-town.
“People need to adjust and opt for smaller shops. Do not open shops on Kampala Road, take them out of town,” he said.
Mr Katongole said for a building to be fully occupied, one must ensure it is accessible, with a one-stop centre of most services such as bank, saloon and parking for the tenants and their customers.
“Putting only offices in a building will most likely make it flop,” he explained.
Uchumi Supermarket was among the first companies to close down two branches in 2015 due to rent arrears.
Later, in 2016, Daily Monitor’s sister paper, The East African, reported a price war by developers in Kampala over attracting retail tenants.
Owing to a poor economy and vast empty space in the structures, Forest Mall, a shopping facility on the Kampala-Jinja highway, announced a discount offer of $10 (Shs35,982) per square metre for non-prime retail space plus the first and second floors of the adjacent new building that is nearing completion.
In the same year, AIG also closed down its offices in Uganda, leaving another building abandoned.
In addition, Nakumatt supermarket closed three branches over debt in rent arrears in July this year.
Former branch representative of Nakumatt Oasis Mall, Mr Paul Mukhwana, said Acacia, Village mall and Katwe were closed by land lords over unpaid rent.
People have now been advised to move to suburbs because rent is affordable and traffic is picking with the high residential occupancy rates. Knight Frank report said the Kampala outer locations of Naguru, Bugolobi, Nakawa and Bukoto have been the focal points of office development since 2014.
Earlier this year, Kampala Capital City Authority property tripled property tax which landlords said they would shift to tenants if government did not reduce it.
A landlord who paid Shs15m is now expected to pay Shs45m.
Property tax is paid annually on six per cent of the rateable value of the property.
Mr Katongole said people are closing businesses rampantly in Uganda showing the poor economy is still a growing cancer.