Five factors influencing occupancy rates in Uganda’s Real Estate Market

Whoever invests in real estate does so to maximize the money they collect from the properties. It is therefore very disappointing when someone spends so much money buying, or constructing a property, only to realize a meager return on investment. Such scenarios leave people swearing never to venture into real estate ever again. Low occupancy rates are a major contributing factor to low returns in real estate.

What are the reasons why a property could suffer from low occupancy rates?

In this article, we delve into several aspects of real estate investment to determine how they influence building occupancy.

1.      Pricing

The number one consideration that the majority of tenants focus on before renting a property is how much money they would have to part with at the end of every month. People compare the pricing of one property with several others in the same market to choose the best offer they can get. Before setting your monthly rent, it is important to benchmark with other similar buildings in the neighborhood to make sure that yours is not overpriced.

To be able to charge higher rent, a property owner must ensure that they offer more value than what is provided in the other buildings. That could include services like automatic power generators, cleaning and laundry, Wi-Fi, and other similar extras to make the offer more attractive. 

It is a delicate balance between maximizing rent fees and occupancy rates because they both contribute directly to the net operating profit of the property. Focusing on one at the expense of the other is counter-productive.  Charging high fees but with low occupancy will lead to a low net operating income at the end of the year. On the other hand, low rent fees will lead to the same outcome even if the occupancy rate is high. The investor should therefore strive to get to a pricing point that maximizes both conditions.

2.      Property management

The way a property is managed contributes immensely to tenant satisfaction levels and therefore affects retention. On properties where the manager quickly responds to tenant issues, treats them with respect, maintains cleanliness, and handles repairs promptly, the vacancy rates will be low. This is because the existing tenants are likely to stay for as long as there is no major reason for them to leave.

On the flip side, when property managers handle tenants poorly, they are motivated to look for other areas to rent. There are scenarios where a tenant is so eager to build their own house simply because of the harsh treatment they have experienced from their landlord.

When selecting a property manager, landlords should ensure that they do background research on the prospective companies. To make the right choice, a landlord can rely on customer surveys or recommendations from other property owners.

3.      Market demand

Sometimes the market is just not doing well and occupancy rates will go down. In periods like during the COVID-19 pandemic, people were required to stay at home. When economies were finally opened, there was a shift in working culture. People were no longer required to work from offices as companies adopted more flexible work routines. This dynamic affected various real estate property types differently. Whereas commercial and office blocks experienced a decline in demand as companies cut back on office floor areas, residential properties maintained a healthy demand. This type of market fluctuation can be crucial to how well a property performs in terms of occupancy rates.

Another example of market influence is the increase in online shopping which has created more demand for warehousing and distribution facilities. Consequently, physical shopping centers are experiencing low occupancy because of the change in shopping culture. An investor should carefully consider these market trends when deciding on the type of property to invest in.

4.      Location

The area in which a property is situated plays a crucial role in the fate of its performance. The suitability of a location for a particular type of building boils down to specific characteristics of the area.

In low to middle-class neighborhoods, a high-end property would struggle with occupancy because those who live there can not afford it, while those who can afford it do not want to live there.

Similarly, the side of the highway on which a commercial building is located could affect its occupancy rate.

Take an example of two shopping centers located on either side of the road. The one on the side where people moving back home in the evening can easily access the building is likely to have better occupancy, all other factors remaining constant. Because most people prefer to shop in the evening when going back home, the retail shops in the more accessible building will have better business than their counterparts on the opposite side. This will in turn contribute to better occupancy rates on that property. 

5.      Marketing and advertising

Yes, you have to advertise your property to get new tenants. Marketing is a concept most real estate investors in Uganda overlook, yet it is one of the major factors influencing occupancy rates in Uganda’s real estate market. People imagine that just because you have built something, people should come and rent. This is a wrong approach to the real estate business.

Just like in any other business, you need to actively engage would-be tenants. These are your customers, therefore you need to demonstrate the value they will gain from renting your property. Ensure that you are easily findable and that when people go out searching for a new space, they can easily know that you have space available and it is exactly what they need. Investors who do this will have higher occupancy rates on their properties than those who choose to neglect marketing.

I’m always in disbelief whenever I hear someone say that real estate in Uganda is not profitable because the houses are always empty. This is because I have stayed at the same apartments for over five years and during that period, I never witnessed a unit vacant for more than two weeks. Moreover, this period is usually when the managers are making repairs to the vacant unit. My landlord must be doing something right.

If you own investment property or are looking to venture into the business, consider the factors discussed above and devise strategies on how to improve the performance of your investments.

To learn more about investing in Uganda’s Real Estate industry, visit https://www.barosgroupltd.com/

About the author;

Benard Sonko is a real estate investment manager and founder of Baros Group Limited. For comments and inquiries, you can reach him at +256742140251 or info@barosgroupltd.com