Saccos eye lucrative office space business

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Mar 16, 2017 , ,
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By Jackson Okoth.

A number of deep pocketed Savings and Credit Co-operatives (Saccos) are setting up ultra-modern complexes with a view to leasing or renting out office space to interested parties. This segment of the property market is becoming an attractive option for the Saccos eager to pump more cash in the form of rental income into their balance sheets.
Mwalimu National, Imarisha Sacco and Kenya Police Sacco are in the list of Societies that are already leasing or renting out space within their newly acquired office blocks.
“What is driving Saccos to go into the business of leasing or renting out office space is the high returns with rental yields now averaging 9.4 per cent,” said Nancy Murule-Research Analyst at Cytonn Investments Management Limited.
She said that apart from capital appreciation, other factors driving Saccos to enter the office space business is the desire to build a legacy, own tangible property and to hedge against inflation.
“While this is a lucrative business undertaking, Saccos should be aware of the risks posed by increased supply in the market which is likely to lower returns. There are also occupancy challenges especially in places with high supply. The other risk is a building becoming obsolete and hence losing its attractiveness,” said Ms Murule in an interview with Sacco Review.
But not all Saccos have set up their own office blocks as a way of getting a foothold in the lucrative office space leasing business. An example is the imposing and majestic office block, the 17-storied office and commercial building owned by Mwalimu National Sacco.
This new state of the art premises, located in the financial capital of Nairobi, boasts of modern conference facilities with a seating capacity of 400 people and a boardroom and has 12,145 square metres of office space and a three level basement parking that measures 6,150 square metres with capacity to accommodate 200 cars.
Mwalimu Towers remains the Society with one of the largest and most prestigious head offices, located in the leafy suburbs of Nairobi’s Upper Hill area. Given its strategic location, Mwalimu Towers will offer numerous benefits that will trickle down to members.
“Owning Mwalimu Towers will provide an enabling environment for the Society at this moment when we intend to broaden income generating activities to improve returns to our members’ investments and reduce over-reliance on Credit products,” said the Society in a brief posted on its website.
But Mwalimu National’s main reason for setting up a new office complex in Upper Hill was not purely to go into the office space leasing business.
“The strategy we had while setting up new Head Office at Upper Hill was that the business had outgrown its offices on Tom Mboya Street, which is the lower side of town- a location that we had been occupying since 1985. We needed a new location that could accommodate all the subsidiaries under one roof- the Sacco business, banking arm and the Insurance Brokerage business,” said Robert Shibutse- Chief Executive Officer, Mwalimu National.
He told Sacco Review in an interview that return on real estate is lower compared to what the Sacco earns from lending to its members. Further, the cost of managing a building is exorbitant and thus having a brick and mortar on the balance sheet ties up cash and is not an ideal investment option for Mwalimu National.
“We are able to utilise the entire building complex by accommodating the Sacco business, Banking and Insurance Brokerage business,” said Shibutse.
Bingwa Sacco, formerly Kirinyaga Tea Growers Sacco Limited has a different reason why it set up its own Bingwa Sacco Limited Headquarters in Kerugoya town, Kirinyaga County.
“One of the advantages we derive because of operating from our own building is that it projects a good image about the Sacco as a strong player with solid investments that is here to stay. Members are also confident when this image is projected,” said Jane Mugoh HSC, Chief Executive Officer, Bingwa Sacco Limited.
She added that the other reason Bingwa Sacco decided to set up its own offices was to escape exploitation from unscrupulous landlords, who have the habit of hiking rent payments without giving any notices.
“There are cases where a Sacco has spent huge amounts to renovate the rented offices in order to meet the stringent regulatory requirements required for any Sacco that intends to operate a front office service activity. Then the landlord suddenly decides to kick you out after putting down this kind of investment, causing severe disruptions to the Sacco business. This is why we moved away from rented premises,” said Ms Mugoh.
She also gave the third scenario where a Sacco rents out a premise and this increases the level of economic activity and property prices in the surrounding areas. Then children of the landlord, attracted by the property appreciation, descend on the property to kick out the tenant and reclaim the property.

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