UGANDA, Kampala | Real Muloodi News | The retail sector in Kampala showed notable performance in the first half of 2024, driven by economic stability and market expansion.
According to the Kampala Property Market Performance Report by Knight Frank, this period witnessed significant growth in prime residential units, despite some market challenges.
The retail sector, in particular, benefited from various factors that contributed to its robust performance.
Prime Residential Market Trends
In the first half of 2024, demand for prime residential units in Kampala was strong, particularly among expatriates and Ugandans living abroad.
The most sought-after properties were two-bedroom and three-bedroom condominiums, favoured for their balance of space and convenience. This demand was primarily driven by the need for modern, well-located residences that offer comfort and accessibility.
Standalone houses also saw substantial demand, appealing to larger families or individuals desiring more privacy and space.
However, the market faced a slowdown during this period, with a marked reduction in sales and lettings. Occupancy levels in prime residential areas declined by 1% compared to the first half of 2023.
The report highlights an oversupply of residential units as a key factor contributing to this slowdown, creating a buyer’s market where sellers faced challenges securing transactions at desired prices.
“The increased supply of residential properties stemmed from the development pipeline, properties being offloaded through auctions, repossessions by banks, and sales by individuals and companies addressing liquidity needs,” the report states.
Additionally, tight monetary conditions, with the Central Bank Rate increased to 10.25%, the highest since May 2017, and high inflation levels, averaging 20.8%, negatively affected disposable incomes, further impacting the market.
Shift in Prime Residential Areas
Historically, areas such as Naguru, Kololo, Nakasero, Mbuya, and Bugolobi have been the preferred prime residential neighbourhoods in Kampala.
These areas are known for their desirable locations and high-quality amenities. However, recent trends indicate a growing interest in other areas like Lubowa, Kigo, and Muyenga.
The emergence of upscale gated communities in these suburbs has attracted buyers and tenants who seek alternatives to the increasingly popular apartments in Kololo.
The shift in demand towards these suburbs is partly due to the steady increase in apartment supply in Kololo, prompting developers to create attractive alternatives in nearby areas.
Despite these evolving preferences, the prime residential market in Kampala encountered a slowdown in the first half of 2024, reflecting the broader market dynamics.
Demolition of Old Bungalows and Rise of Apartments
In prime residential areas such as Kololo and Nakasero, there is a noticeable trend of older detached houses being demolished and replaced with modern apartment blocks. This development strategy is driven by the need to maximize land use and increase rental incomes through multi-let units.
Developers like VAAL have entered the market with high-density residential projects, particularly in these areas, catering to the current market demands for modern living spaces.
As a result, there is a growing scarcity of stand-alone houses in these prime areas. Tenants who prefer the privacy and space offered by detached homes are increasingly turning to secondary residential areas such as Mbuya, Munyonyo, Muyenga, and Bugolobi.
These areas are emerging as viable alternatives for those seeking more space and a different residential experience compared to the densely developed prime neighbourhoods.
Demand for Modern Interiors and Amenities
Tenant expectations are evolving, with a growing demand for modern interior finishes and enhanced amenities. Developers in secondary residential suburbs like Nalya, Kyanja, Bukasa, and Najera are responding by upgrading their project specifications.
These upgrades include the use of high-quality materials, contemporary design elements, and the inclusion of amenities such as fitness centres, swimming pools, and secure parking.
As a result of these improvements, rental and sale prices in these secondary suburbs are rising. These areas are becoming more competitive with traditional prime residential neighbourhoods, offering modern living standards at potentially lower costs compared to central locations. This trend is attracting tenants who seek the quality and amenities of prime areas but at more accessible price points.
Growing Demand for Reliable Internet Access
Access to fast and reliable internet has become a crucial factor for tenants when choosing accommodation. In response to this demand, telecommunications companies are expanding their optical fibre networks into secondary residential suburbs such as Naalya, Kyanja, Bukasa, and Najera.
New market entrants like Canal Box are also enhancing connectivity options in these areas.
Moreover, infrastructure improvements under the Greater Kampala Metropolitan Area Development Programme are making these suburbs more appealing.
The upgrade of access roads to commuter towns from Murram to tarmac and the resurfacing of others are expected to significantly improve road quality and connectivity.
These developments are anticipated to positively impact the marketability and land prices in these secondary suburbs.
Pipeline Activity in Prime Residential Areas
Pipeline activity in Kampala’s prime residential areas surged by 67% in the first half of 2024, with over 1,000 new apartment units expected to enter the market within 12 to 24 months.
Developers are focusing on high-density projects, featuring one- and two-bedroom apartments, particularly in sought-after neighborhoods such as Kololo, Nakasero, and Naguru. This influx of new units is likely to exacerbate the current oversupply in the residential market, potentially leading to downward pressure on rental prices as property owners seek to attract tenants and reduce vacancies.
In response to evolving tenant preferences, a new trend is emerging in residential development.
Modern complexes are increasingly incorporating mixed-use elements, blending residential spaces with offices, food and entertainment venues, and retail areas within the same development. This approach aims to create vibrant, self-contained communities that offer residents a more integrated and convenient lifestyle.
Shift Toward Short-Term Rentals
There is a discernible shift in landlord preferences toward short-term rentals for furnished apartments, particularly in areas like Kyanja, Kisaasi, Najjera, Bukoto, Mutungo, Muyenga, and Kigo. This trend is driven by lower occupancy levels in higher-density apartment blocks, leading landlords to favour short-term leases to maintain flexibility and attract a varied clientele.
Short-term rentals are becoming more popular, especially with the rise of online booking platforms such as Airbnb and Booking.com.
These platforms make it easier for landlords to manage short-term bookings and for tenants to find suitable accommodations.
As a result, short-term rentals are becoming a more viable and attractive option in areas where traditional long-term leases may face higher vacancy rates.
Retail Sector’s Strong Performance
In contrast to the residential market challenges, the retail sector in Kampala exhibited strong performance in the first half of 2024.
The sector benefited from a diverse mix of products and tenants in various shopping malls, as well as key retail calendar events such as the back-to-school season, Valentine’s Day, Easter, and Eid, which significantly boosted foot traffic and consumer spending.
Retail metrics for this period were notable: turnover increased by 30%, foot traffic grew by 5%, and occupancy levels rose by 3%.
The Kampala Flyover Project, which improved road access around Arena Mall, played a crucial role in this success, enhancing accessibility and attracting new retailers.
However, challenges remain for new neighbourhood malls in areas such as Kyengera, Kyanja, Najjera, Bulindo, and Buloba. These malls face limited parking space and rental rates that do not yet cover construction costs.
Additionally, the “15 per cent turnover taxation” on rental income continues to affect profitability in the retail sector.
Outlook for the Retail Sector
The retail sector outlook for the second half of 2024 remains optimistic. Anticipated improvements in economic activity, the launch of additional retail space in Q4 2024, and favourable conditions such as a stable currency and positive investor sentiment support this positive projection.
Emerging trends include the reduction in bookstore sizes due to the increasing popularity of online books and a decline in demand for stationery.
On the other hand, the tech, electronics, and fashion sectors are expanding, with local and international brands growing their presence.
While the retail sector in Kampala is experiencing growth and optimism, the residential market faces challenges, particularly due to an oversupply of units and evolving tenant preferences.
The real estate landscape in Kampala is dynamic, with ongoing developments in both the residential and retail sectors shaping the market’s future.
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