The roads around Arena Mall have been opened to the public, easing access to and from the mall. PHOTOs/Tony Mushoborozi.
The Kampala Property Market Performance Report by Knight Frank, covering the first half of 2024 (H1 2024), highlights a continued strong demand for prime residential units in the city. This demand is predominantly fuelled by two groups; expatriates and Ugandans living abroad. According to the report, the most sought-after properties are two-bedroom and three-bedroom condominiums. These units are favoured for their balance of space and convenience, making them particularly appealing to the expatriate community and Ugandans who return to Kampala. Following closely in demand are standalone houses, which offer more privacy and space, appealing to larger families or individuals seeking more expansive living environments.
The robust interest in these types of properties reflects broader trends in the real estate market, where high-quality, well-located residences continue to attract significant interest from both international and local buyers. This demand underscores a vibrant and dynamic real estate sector in Kampala, driven by a blend of local and global factors.
The report also indicates that the prime residential real estate market in Kampala has experienced notable shifts and challenges.
Historically, the most preferred prime residential areas in Kampala have been Naguru, Kololo, Nakasero, Mbuya, and Bugolobi. These neighbourhoods have long been sought after for their desirable locations and high-quality amenities.
However, recently there has been a growing interest in other areas such as Lubowa, Kigo, and Muyenga. This shift can be attributed to the emergence of upscale gated communities in these suburbs, which are designed to compete with the increasingly popular apartments of Kololo. Over the years, Kololo has seen a steady increase in apartment supply, prompting developers to create attractive alternatives in nearby areas.
Despite these evolving preferences, the prime residential market encountered a slowdown in H1 2024. The report indicates a marked reduction in both sales and lettings during this period. Additionally, occupancy levels have declined by one percent compared to the first half of 2023, further reflecting the market's deceleration.
One of the key factors contributing to this slowdown is the imbalance between supply and demand. The market is currently experiencing an oversupply of residential units, which has created a buyer’s market, an environment where buyers have greater leverage due to the higher availability of properties. This surplus has made it more challenging for sellers to secure transactions at desired prices and has resulted in a less dynamic market overall.
“The increased residential properties supply was on account of stock from the development pipeline, off-loading properties through auctions and repossessions by banks and other credit institutions as well as individuals and companies disposing off properties to cater for their liquidity needs.
The tight monetary conditions where the Central Bank Rate was increased from 10 percent to 10.25 percent, the highest since May 2017, high interest rates averaging 20.8 percent, and high inflation levels have affected disposable incomes negatively, creating a credit squeeze. The credit squeeze has led to a slow market performance worsened by the buyer’s indecisiveness due to numerous options….” the report states in part.
Old bungalows demolished, apartments built
In the prime residential areas of Kampala, such as Kololo and Nakasero, there is a noticeable trend of older, detached houses being demolished and replaced with modern apartment blocks. This shift is driven by developers aiming to capitalise on economies of scale by constructing multi-let units. The benefits of this approach include increased rental incomes and reduced operational costs through shared facilities and services.
For instance, new developers such as VAAL are entering the market with high-density residential projects, particularly in Kololo and Nakasero. These developments are often characterised by sleek, modern designs that appeal to current market demands and are intended to maximise profitability by accommodating more tenants within the same footprint.
This trend of replacing detached homes with apartment blocks has led to a significant shift in the residential landscape. As a result, there is a growing gap in the availability of stand-alone houses in these prime areas.
Tenants who prefer the privacy and space offered by detached homes are finding fewer options in these high-demand neighborhoods. Consequently, many are turning to secondary residential areas such as Mbuya, Munyonyo, Muyenga, and Bugolobi. These areas are emerging as alternative locales for those seeking stand-alone houses, offering more space and a different residential experience compared to the increasingly dense developments in the traditional prime areas.
This shift highlights a broader change in the market dynamics of Kampala’s real estate sector. While modern apartment blocks are becoming more prevalent in established prime areas, secondary areas are seeing increased interest from tenants looking for the type of accommodation that is becoming scarcer in the heart of the city.
High demand for modern interiors
As tenants increasingly seek modern interior finishes and enhanced amenities, developers are responding by upgrading their project specifications in secondary residential suburbs such as Nalya, Kyanja, Bukasa, and Najera. This trend reflects a broader shift in tenant expectations and is driving changes in the local real estate market.
Developers in these areas are now incorporating high-quality materials, contemporary design elements, and a range of amenities that align with the latest standards of luxury and convenience. Features such as modern kitchen appliances, stylish bathrooms, and energy-efficient systems are becoming more common. Additionally, amenities such as fitness centers, swimming pools, and secure parking are being included to attract tenants who are accustomed to these conveniences in more central locations.
As a result of these upgrades, the rental and sale prices in these secondary suburbs are rising. The improvements are making these areas more competitive with traditional prime residential neighborhoods, offering a blend of modern living standards with the added benefits of potentially lower costs compared to central locations. This has led to a growing appeal for these suburbs among tenants who seek the quality and amenities of prime areas but at more accessible price points.
Demand for fast, reliable internet
Access to fast and reliable internet has become a crucial factor for tenants when choosing accommodation. In response to this demand, existing telecommunications companies are expanding their optical fiber networks into secondary residential suburbs such as Nalya, Kyanja, Bukasa, and Najera. Additionally, new entrants such as Canal Box are entering the market, further enhancing connectivity options in these areas. Moreover, improvements in infrastructure are contributing to the appeal of these suburbs.
Under the Greater Kampala Metropolitan Area Development Programme, several access roads to commuter towns are being upgraded from murram to tarmac and others are being resurfaced. These enhancements are expected to significantly improve road quality and connectivity.
The development of better road networks and expanded internet access will positively impact the marketability and land prices in these secondary suburbs. Enhanced infrastructure makes these areas more attractive to potential tenants and buyers, thereby driving up property values and fostering greater interest in these once less-desirable locations.
High pipeline activity
Pipeline activity in Kampala’s prime residential areas has surged by 67 percent, with over 1,000 new apartment units expected to enter the market within the next 12 to 24 months. Many developers are focusing on high-density projects, featuring one- and two-bedroom apartments. This influx of new units, particularly in sought-after neighborhoods such as Kololo, Nakasero, and Naguru, is anticipated to exacerbate the current oversupply in the residential market.
As the stock of available apartments increases, it is likely to exert downward pressure on rental prices as property owners and managers seek to attract tenants and reduce vacancies. This trend underscores a potential shift in the market dynamics, where the balance between supply and demand becomes increasingly strained.
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 convenience retail areas within the same development. This approach aims to create vibrant, self-contained communities that offer residents a more integrated and convenient lifestyle.
Short stays for furnished apartments
There is a discernible shift in landlord preferences towards short-term rentals for furnished apartments, driven by lower occupancy levels in higher-density apartment blocks. This trend has been particularly evident in neighborhoods such as Kyanja, Kisaasi, Najjera, Bukoto, Mutungo, Muyenga, and Kigo. These areas are seeing a growing number of short-term renters, reflecting a broader change in tenant preferences and market dynamics.
Landlords are increasingly favouring short-term leases as a response to the challenges of maintaining high occupancy rates in densely populated apartment blocks.
Short-term rentals offer the flexibility to attract a varied clientele, including expatriates, business travelers, and vacationers, who prefer the convenience and flexibility of furnished accommodations. This shift is further supported by the rise of online booking platforms. Platforms such as Airbnb, Booking.com, and other short-term rental services are becoming more popular among tenants and property owners. These platforms streamline the rental process, making it easier for landlords to manage short-term bookings and for tenants to find suitable accommodations.
The growing reliance on these digital tools has facilitated this trend, allowing landlords to reach a broader audience and respond more dynamically to market demands. Consequently, short-term rentals are becoming a more viable and attractive option in areas where traditional long-term leases may face higher vacancy rates.
Retail
The first half of 2024, Kampala's retail sector exhibited strong performance, driven by a robust economy and heightened market activity. Several factors contributed to this growth, including the entry of new retailers and the expansion of existing ones.
The sector benefited from a diverse mix of products and tenants in various shopping malls. Additionally, key retail calendar events such as the back-to-school season, Valentine’s Day, Easter, and Eid significantly boosted foot traffic and consumer spending.
Retail metrics for this period were notable: turnover increased by 30 percent, foot traffic grew by five percent, and occupancy levels rose by three percent. The Kampala Flyover Project, which improved road access around Arena Mall, played a crucial role in this success. It enhanced accessibility, attracted new retailers, and positively impacted both occupancy and turnover figures.
However, challenges persist. New neighbourhood malls in areas such as Kyengera, Kyanja, Najjera, Bulindo, and Buloba are facing issues such as limited parking space and rental rates that do not yet cover construction costs. This challenge is exacerbated by the "15 percent turnover taxation" on rental income, which affects profitability.
Looking ahead to the second half of 2024, the retail sector outlook remains optimistic. This positive projection is supported by anticipated improvements in economic activity, the opening of an additional 1,606 square meters of retail space in Q4 2024, and favorable conditions such as a stable currency and positive investor sentiment.
Emerging trends include a reduction in bookstore sizes due to the increasing popularity of online books and a decline in demand for stationery. Conversely, the tech, electronics, and fashion sectors are expanding, with both local and international brands growing their presence.
The industrial sector experienced notable growth in the fiscal year 2023/24, driven primarily by investments in manufacturing, construction, mining, and renewable energy projects. Foreign Direct Investment (FDI) in Uganda surged, with significant investments in oil and gas, agriculture, infrastructure, and green projects. Uganda was recognised as the best investment destination in Africa at the Annual Investment Meeting (AIM) Congress in Abu Dhabi.
More than $1.5b in FDI from the United Arab Emirates and an additional $1.27b from other global trade partners were attracted to the country.
In the first half of 2024, there was a slower uptake of warehouse space, largely due to reduced demand from traders, manufacturers, and importers. Despite this slowdown, there remains steady demand from the food and beverage sector and coffee exporters.
Outlook
The retail outlook for H2 2024 remains optimistic, supported by the anticipated improvement in economic activity, the launch of new stores, with a further 1,606 m² expected to open within the various malls in Q4 of 2024, the reasonably stable currency, and upbeat investor sentiments.
Emerging trends in line with international trends, show that the sector has seen the downscale of the bookstore footprint, with the growing trend of books being accessible online and stationary on the wane.
The tech and electronics category continues to expand due to increasing brands operating in the sector, the fashion retailers are increasing their footprint and brand across the sector with both local and international retailers expanding.
The industrial sector
Sector growth in the FY 2023/24 was mainly driven by manufacturing, construction, and mining. Foreign Direct Investment (FDI) inflows to the oil and gas sector, agriculture, infrastructure, mining, and green projects have increased.
There is increasing investment in renewable energy and other green industrial projects in Uganda, such as Nexus Green, 1MTN, and Sprouts of Water, attracting more than $400m in FDI in the FY 2023/24.
There has also been a slight increase in demand for industrial properties for sale. This has been mainly for industrial land instead of warehouses for sale, with most preferring to buy land and build their warehousing premises.
Buyers looking for industrial properties to buy have preferred areas of Ntinda Industrial Area, Namanve, the Industrial Area on Jinja Road, and other areas close to the Northern bypass. The industrial lettings market was sluggish in H1 2024, with most of the warehousing space leased out to start-ups, companies relocating to better facilities, and those expanding their distribution networks.
The average letting period is between three and 12 months, depending on the location and size of the industrial property and the facilities provided. Warehouse rental levels have remained stable, similar to the H1 2024 levels, ranging between Shs1,100 and Shs2,600sqm per month, depending on location attributes and other property-specific factors. Tenants continue to drive hard bargains due to the reduction in demand for space and landlords are offering flexible leases, to incentivise tenants.
