The office sector in Kampala is poised for an oversupply of space in 2025, with the completion of major projects such as the Chint Building, UDB Building, Ministry of Finance Building, and the Inspectorate of Government Building.
According to the latest Knight Frank Uganda Kampala Property Market Performance Review, this influx is expected to result in increased vacancy rates, particularly during the second half of 2025 (H2 2025), as the market adjusts to the added capacity.
Other notable office projects in the pipeline include, Pension Towers, Speke Business Park, Plot 5 Luthuli Avenue, Saddler View Office Park, Twed Heights and JLOS House.
Related to this trend, in a bid to cut expenditure, the government is implementing a rationalization policy that saw some Ministerial departments and Agencies (MDAs) abolished or combined while others were returned to their mother ministries.
This is likely to have a negative impact on the performance of the office sector as some of the MDAs who were renting out office premises, will relinquish these spaces thus resulting in an office space oversupply.
Pipeline projects continued to experience significant construction completion delays due to a number of reasons such as development finance constraints and unexpected/delayed regulatory hurdles.
Over 100,000 square metres of office are expected onto the market between H1 2025 and H2 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.
The Grade A rental rents held stable in comparison to the H2 2023 rates while the Grade AB rental rates experienced a seven percent increase underscoring a shift among cost-conscious tenants seeking affordability without significant compromise in location or amenities.
Despite robust demand, occupancy levels for Grade A and AB office properties experienced a slight decline, with vacancy rates increasing by one percent compared to H2 2023. This marginal drop is 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 (CBD) to the city suburbs, and market saturation in specific Grade A segments.
The Landlords remained firm on implementing annual contractual escalations of three percent to five percent, 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 (below 200 sq mts) has persisted.
In the second half of 2024, there was a noticeable increase in demand for office space outside the CBD, 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.
The residential sector was characterized by low sales and rental volumes, and occupancy rates fell by two percent to 82% compared to the same period in 2023.
However, there was a one percent rise in average rents for three-bedroom apartments due to the introduction of newer, larger, and more modern units, while rents for two-bedroom apartments remained unchanged.
The property management and consultancy firm says the decline in occupancy levels is attributed to the upcoming projects in the secondary residential locations.
While these areas are located further away from the CBD (within a 5 kilometres to 10 km radius), they offer modern spacious units within quiet neighborhoods providing a serene environment at more affordable rates away from noise pollution, increased construction sites, and congestion that has characterized the prime areas of Nakasero and Kololo.
This has, in turn, forced the diplomats, expatriates, and other high/middle- income occupiers who usually prefer the prime areas to consider the secondary suburban locations of Naguru, Mbuya, Bugolobi, and Muyenga among others.
The influx of rent-seekers from prime areas to the secondary suburban locations has resulted in significant rental increases within these locations, consequently extending the city’s boundaries.
A notable example is the continuous rise in rental prices in the Kyanja neighborhood, which has led to the development of surrounding areas such as Kungu, Komamboga, Kitetika, Lutete, and others. H2 2024 saw a continuation of the high-density projects (flats and apartments) as seen in H1 2024.
The retail sector remained resilient in H2 2024 supported by new market entrants and expansions of existing retailers boosting occupancy growth. On an annual basis, average turnover within the general grocery retail category increased by 2.8 percent, occupancy levels across Knight Frank-managed malls increased by 1.72 percent, rising from 80.7% in H2 2023 to 82.4% in H2 2024 while average footfall figures decreased by 5% .
These mixed indicators—rising turn- over and occupancy alongside declining footfall—suggest a nuanced shift in consumer behavior. While increasing occupancy and turnover figures point to consistent consumer demand, the decline in footfall figures suggests that some consumers have changed their shopping patterns.
The continued development of neighborhood malls within the Greater Kampala Metropolitan area has likely contributed to the decline in footfall observed in Kampala’s larger retail malls.
Smaller malls offer increased convenience for local residents due to their proximity to residential areas, reducing travel time. However, these neighborhood malls typically offer limited parking capacity and a less diverse tenant mix, primarily featuring local retailers with limited presence from international and regional brands.
The industrial sector remained stable, with rental rates consistent with those in H2 2023 and occupancy levels above 80%. There was an increased uptake of warehouse space, particularly from SMEs, start-ups, and businesses establishing distribution centers. Additionally, there was also a rise in demand for industrial properties, particularly for land within proximity to the CBD.
