Kenya's growth prospects to drive activity in Nairobi's real estate sector
Ongoing investor confidence buoyed by signs of broader economic and property sector recovery
The Nairobi real estate sector is in the spotlight as the city hosts the annual East Africa Property Investment Summit (EAPI), the premier industry platform for the region.
With the release of JLL's Nairobi City Report, Tom Mundy, Head of Advisory for Sub-Saharan Africa at JLL, believes the timing is opportune to talk about Kenyan real estate as the country has overcome several challenges and the economy is expected to grow by a substantial 5.5% in 2018.
Mundy says, "Despite the aftermath of a drought as well as a challenging political year, Kenya has maintained positive GDP growth. Investor confidence has withstood the recent economic challenges and the long-term prospects are encouraging".
The conclusion of the elections with President Uhuru Kenyatta remaining in office, as well as the start of construction of Hass Towers/The Pinnacle, set to be the tallest building in Africa at 300m high, are two notable recent events that bode well to support further activity in the real estate sector.
In the office market, Mundy comments that, aside from political and economic factors, it has been impacted by the disconnect between quality of supply and the quality of stock sought by the market. "As occupiers seek to move out of the dilapidated city centre, the pipeline is almost completely dominated by developments in decentralised nodes such as Westlands, Upper Hill and Gigiri. Developer confidence remains firm with the market anticipating 234,410m² of accommodation by 2020, representing a 30.4% increase in three years." Mundy says this suggests that there is occupier demand for new high-quality office accommodation, contributing to slower activity in the past year in a market with plenty of 'basic' office space. This gravitation of demand to buildings with modern features should tilt the market towards rental growth.
On the retail front, the weak consumer climate in Kenya is evident. Mundy says the result is reduced demand for accommodation and new malls struggling to find occupiers. However, the scenario is creating opportunities, with various competitors seeking to take advantage of other's' financial problems. "It has also created increased interest from other retailers: Tuskys plans to expand its clothing retail outlets and Botswana's Choppies and South Africa's Shoprite and Game are set to enter or expand in the market providing a boost to retail demand."
In the hotels and hospitality sector, the high level of new supply in the market, as well as a realistic pipeline of around 1,500 rooms, will continue to place pressure on room rates as occupancy will remain around 45% to 55% for the market. "Demand fundamentals are however strong with renewed political stability, robust growth in leisure tourism and government commitment to the tourism sector," says Mundy.
With a number of obstacles behind it, the sentiment in the city is improving, paving the way for renewed growth and development in the nation's capital and the centre for economic activity in east Africa.
Read the full Nairobi City Report here