Shem Sabiti Bageine, Managing Director of Bageine & Company Ltd, Shares Insights on Real Estate Challenges and Opportunities in Uganda

How has the COVID-19 pandemic impacted your industry, company, and the projects you’re currently involved in?

The impact of COVID was primarily financial, especially in terms of the performance of companies, particularly the tenants in the buildings we manage. Tenant companies were hit hard, especially those involved in businesses directly affected by the pandemic. We’re talking about restaurants, travel agencies, and businesses that rely on social interactions. In some cases, these tenants occupied significant space in the properties, so you’d find a large amount of space becoming vacant.

That, of course, had a domino effect on the property and the landlord because the landlord’s revenue from the property also took a hit—sometimes as much as 20%. Many of these properties were financed by loans from banks for their development, so it had a knock-on effect on the banks too. When you have this kind of financial pressure, even banks felt it because their capitalization was affected, and some fell below the required regulatory thresholds, leading to threats of closure. When banks are affected, it affects depositors and the broader economy, which slows down growth. It takes a lot of time to climb out of that, and the reality is that many people want to hold on to pre-COVID ways of doing things, which is having a telling effect on business performance and the property industry, especially in terms of development projects.

Another impact we’ve seen in our industry is the need for comprehensive health and safety policies. Local authorities are now requiring these policies for properties that host the public to get occupation permits or licenses. If more properties in Kampala had fully implemented health and safety systems before COVID, it could have helped reduce the number of cases. It’s a lesson learned, but it also represents a new cost—this has added another line item to property management and development budgets, from needing professional consultants to getting additional approvals and permits.

In the local context, one of the biggest challenges we face is people not learning from past mistakes and not adapting to the post-COVID way of doing things. Take online meetings, for example. Pre-COVID, holding an online meeting was expensive and rare, but now it’s the norm and has made people more efficient. Previously, you could lose 10 to 15 minutes just attending a meeting, but now, with online meetings, it’s reduced to just a minute or two. Today, for instance, I’ve had one online training, three online meetings, and this one all in a single day. This would have been impossible pre-COVID, where you’d have to physically move from one boardroom to another.

This has made us more efficient, but it has also reduced the demand for office space. Before the pandemic, I’d spend 9 to 5 in the office, but now I can achieve the same objectives while spending less time in the office, thanks to technology. The need for physical office space is diminishing, and we’re seeing a shift in how office spaces will be developed in the future. While the demand for office space has slowed, retail space has experienced a different outcome.

In retail, the demand for space has increased, partly due to social distancing. In shopping malls, promenades are being widened to allow for more space between people. Even new outlets, like KFC, have increased their square footage to account for social distancing, which has become the norm. However, while the demand for space has increased, it doesn’t necessarily translate to higher revenue because larger spaces often come with concessions, meaning the rate per square meter decreases.

Another significant shift in retail, especially post-COVID, has been the move to turnover-based leases for large retailers. Pre-COVID, tenants paid rent based on a fixed amount per square meter, regardless of how well their business was performing. However, during the lockdowns, many retailers found themselves paying rent without generating any revenue. This led to landlords offering deferred payments instead of waiving rent entirely, but when businesses reopened, tenants found themselves with a backlog of rent to clear. Many had to downsize or vacate their spaces.

Overall, COVID triggered a slowdown in the property sector, particularly in office space. While the market has stabilized, we don’t expect it to return to pre-COVID levels anytime soon. The retail sector, on the other hand, has seen interesting shifts due to social distancing, with increased demand for space but not necessarily higher revenue.

How has COVID affected residential properties? Has demand gone up like retail or down like office space?

COVID significantly boosted the mortgage industry. Pre-COVID, most young professionals were renting, paying monthly or quarterly to landlords. When the pandemic hit, people couldn’t go to work, but landlords still demanded rent, as they had loans to service for developing the properties. Evictions were happening, and the government had to intervene, asking banks to defer payments, and allowing tenants to catch up later.

This situation sparked a shift in mindset—many who were previously against mortgages because of high interest rates realized the dangers of renting. They saw that during times like COVID if you rent and lose your income, you’re at risk of eviction. However, if you own your home, even with a mortgage, banks handle defaults differently, and you’re less likely to lose your roof.

As a result, there’s been a notable increase in the demand for residential properties, driving up their value. Before COVID, we already had a shortfall of around 2.6 million housing units, and now that demand is even higher. There’s also been a noticeable shift towards condominium purchases instead of standalone homes. This is because when you buy a standalone home, you’re also paying for the land, which significantly increases the cost. Condominiums, on the other hand, offer more space for a fraction of the cost since they don’t include the land.

The residential sector has taken root, with many standalone houses being converted into apartment complexes in response to demand. For example, I live in a standalone bungalow, but to my right and left, apartments have sprung up, reflecting this trend. Many people are opting for condos near the city center, while larger homes are being built further out.

This shift is also supported by better internet and mobile connectivity, which expanded during COVID. Previously, you’d get good connectivity only within 10 kilometres of the city, but now you can go 25-30 kilometres out and still be connected, making living further from the city centre more viable. The rise of remote work has further driven this trend.

In terms of investment, residential real estate is now at the top, followed by retail, with office space being the least favourable option right now.

Tell us about your projects. What have you worked on since COVID, and what are you currently working on? Can you give us a brief overview?

Mainly, our forte has been in commercial office. We still manage about 62,000 square meters in the city with an average occupancy of about 85%. You might say that occupancy does not sound impressive, but that has been a lot of hard work and adjustments to accommodate existing tenants following what happened with COVID. Given how many years we have been in the industry and the kind of training we have, we know how to do that. We are mainly in commercial, and some of our flagship projects include our business park, a 25,000 square meter complex just on the outskirts of the city, which is performing very well by any standards.

We also have high-rise towers. I am currently in Aha Tower, which is about a 5,000-square-foot project with three rooms. We also have a project being taken over by a significant tenant. Due to non-disclosure conditions, I cannot disclose who that tenant is, but it is a complete fit-out build and transfer project involving about 3,500 square meters of office space. We are converting this space completely based on the specifications of this established client, and we are in the final stages of the design phase.

In retail, we are currently looking at a development project in the western part of Kampala City, near Baker University. This is an eight-acre mixed-use development that will include retail, a hotel, and a little bit of commercial space. We hope to break ground early next year, and it will encompass up to 47,000 square meters. We are involved right from the design stage through to management at the end. We are just finishing up with the architect on images and impressions to see how we can showcase the projects we have handled on our website.

We are also hopefully in the final stages of signing off on a contract for a 6,000-bed student hospital development on a public-private partnership (PPP) basis. We will come in as the real estate consultants to advise during the design stage, engage in project management, and then manage the facilities.

Residentially, we do not have any major projects right now, but we are engaged in sales. We are still involved in the PAL Marina development, which opens into Lake Victoria. We have been sales agents there since they started, and they are currently about 25 to 30% through the entire project, which covers about 480 acres. This project comprises villas, apartments, townhouses, and a marina designed to make water transport efficient, a significant change for Uganda.

There are no other major projects we are currently involved in. Those are the key projects we are handling. Development projects have not been very common or significant since COVID, but we hope that with the advent of the oil sector, this will begin to change. We are also reaching out to the Albertine region in Western Uganda to establish a presence and provide services for the oil players. We want to take our skills and professional quality to that area and offer them facility management, development services, and more. However, it is crucial that we are visible to realize these projects. Not much has happened generally in the economy since COVID, but we are glad to have some of our portfolio in place.

How have you stayed competitive in the real estate market after COVID-19? What gives you an edge over new players?

Think about maybe two or three things. The first is trust. Trust has been proven over time for two generations now, with me being the second generation almost making way for the third one. We have not had trust issues, so there is a lot of reliability that the market has on us regarding what we handle. The trust component is key. The second is local content. We are 100% local and have qualifications that match, if not supersede, some of the international firms that come to compete. In terms of skilled personnel, it is easy for clients to choose between us and them.

The third is delivery in terms of what the client’s expectations are. We have taken on probably the tougher projects, such as the shopping mall project that is coming up. Many of our competitors run away from those kinds of projects because they think they are doomed to failure. We take them on and make them work, and we have done that on a number of occasions. This is one of the reasons why some key developers and investors in Uganda choose to work with us.

One other thing is the personal touch. Many of these firms have bosses. Many of my competing firms have bosses; we do not have a boss here. Even I will attend to a tenant’s issue if the matter arises and I am within reach. Even though I have a property manager at a building to deal with that issue, if I am within reach, I would rather handle it. This way, the tenant knows we actually care. We do not put them in there just for their money. We actually care that they are comfortable because we believe you will not get someone to pay top-dollar rent unless they feel like they want to stay. The only way to make them feel that way is to ensure the premises or property they are in are worth the money.

That kind of approach has lent quite a lot to our reputation. Feedback from the market has always been very clear about how we handle things compared to other firms in the industry. For us, what clients like about us is our approach. Those are the strengths that have kept us afloat in a very shaky industry at the moment. At one point, it was touch and go for all of us. Even our competitors have stories to tell about how they survived and what they learned from the experiences we have gone through. Our competitive edge, I would think, is that.

At the end of the day, it is just the professional quality of how we do things, our training, our background, continuous learning, and our efforts to bring in a specific crop of people based on interpersonal skills, professional training, and educational background. That is the brand; that is really our brand.

What projects do you envision completing or starting in the next three years?

Just before COVID-19 struck, I was looking at opening a division for developing property ourselves. It can be an operating task when you know what needs to be done, but the client is standing in your way. At the end of the day, the client will turn around and say it is your fault. You were my property consultant, and my property has not worked yet. It is very difficult for me to tell my clients that they are at fault because they hindered the process. I do not believe a client can ever be to blame. If I am giving you professional services in real estate and you botch it, then I have not done my job.

That said, we were thinking of engaging in development ourselves to showcase that if you do everything the right way without emotion, cutting corners, or taking shortcuts—this is what you get. This is still a dream of mine. I do not want to see it turn into reality right away, but in the next two to three years, especially if I can turn around some of these projects we are getting into, it is something I want to consider again. I believe we would make a huge contribution to the industry by adhering to principles of honesty, transparency, and doing the right thing. This includes providing the correct product, even if your return is not as good as those who take shortcuts.

We are also enhancing our existing services given the new way of doing things. We are currently upgrading our website, property management software, and valuation software. We want to expose ourselves out there as much as we can to benefit from an online presence. This is a timely exercise. We aim to run with this for the next two to three years as we pick up the pieces and heal from the impacts of COVID-19. After that, we will consider strategic changes in how we operate.

Is there anything else you would like to discuss that we have not covered?

Generally, one thing I want people who watch this interview to know, especially those in Uganda and those interested in investing in Uganda, is that all the downside issues are global. It is not only in Uganda, and Ugandans should not be overly concerned that they are entering an economic crisis. This is a global scenario born of a global event. What is important is to learn from what that event did. My only concern is that people want to go back to how things were. We need to move forward, be appreciative of the changes, adopt them in our thinking and general mindset, and apply that so we can rebuild and grow back into the robust industry and overall economy that we had.

One of my beliefs is that life is worthless without challenges. If you are faced with a challenge, you should get excited. The only people who do not face challenges in life are those who are in a drug-induced state because nothing else matters to them other than the next hit. If you have no challenges in life, you should check yourself because anyone outside that scenario must face challenges. What is important is what we learn from those challenges and how we apply those lessons for the betterment of everyone around us so that we can benefit individually as well.

I have become passionate about this because I have seen many people locally and internationally who have struggled due to the COVID-19 pandemic. It is often because they cannot accept that life is one big challenge. That is what I want to leave as my parting shot.

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