Saccos eye lucrative office space business

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Feb 15, 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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