Contemporary (current) Issues in The Real Estate Sector

Kenya’s real estate sector was set to see a significant growth this year on the back of its growth recorded in 2019. However, the Covid-19 pandemic has dwarfed its potential to a large extent. Previously, the sector had witnessed sluggish growth in 2017 and 2018. In 2019, the real estate sector in Kenya recorded a growth rate of 5.3 percent, which is 1.2 percentage points higher than 4.1 percent growth rate recorded in 2018, according to KNBS Economic Survey 2020.

Markets Review further revealed that the real estate sector recorded moderate activity with average rental yields improving marginally in the residential and commercial office sectors to 5.2 percent and 7.8 percent respectively, from 5 percent and 7.5 percent in the fourth quarter of 2019. The retail sector, however, has registered a 0.1 percent points drop in rental yields to 7.7 percent in the first quarter of 2020, from 7.8 percent in the last three months of 2019.

In the second quarter after the first case of Covid-19 was reported, the sector experienced a slump as Kenya entered a state of lock down to curb the spread of the infection. During the last six months, the pandemic has created economic distress and the pressure has been felt by its real estate sector as well.

Some factors have led to the development of unique trends across the real estate sector, as investors are seeking high returns and buyers sought for quality products.

Land

Infrastructural development has seen land values go up while a growing population has ensured sustained demand. In the hope that land values will increase in the future, investors are increasingly buying land with the intention of selling it in the future, a concept known as land speculation. The land could be put to temporary use that generates income on a regular basis, a concept known as land banking. Additionally, in order to attract buyers, developers are also using agribusiness as a value add to plots intended for sale and offering returns on a seasonal basis to clients. The concept, known as agribusiness, entails agriculture activities, agro-insurance, complete farm management services and guaranteed market of the produce.

Residential

As the population experiences rapid growth, more so an increasing middle class, the residential sector is recording the highest demand with the nationwide housing deficit standing at 200,000 units annually and an accumulated deficit of over 2 million units.

The highest demand has been for affordable housing to cater for the 61% of urban dwellers who live in slums and shortage in student accommodation accounting for 40% of the deficit. More employers are increasingly applying low-cost housing construction methods such as alternative building technologies which are known to reduce construction costs by as much as 50%. In addition, with the demand for a live-work-play lifestyle, master planned, communities are increasing with areas such as Kiambu and Machakos counties becoming hotspots. Notable master planned communities are the likes of Konza City and Tatu City.

Commercial

1. Office

The Office sector in Kenya has grown rapidly over the past decade in line with the improving economy as firms expanded in their operations while multinational firms continually set up their base in the country which is considered the key gateway to the East African market and a leading economic hub in the Sub-Saharan Africa.

As this sector grows, there’s an observation of new trends due to the clientele changing its preference and international firms creating demand for something that is of world-class standard. Serviced offices are slowly gaining popularity due to the growing SMEs and as the dynamics of office space design and demands continue to unfold, more developers are offering semi-fitted offices by providing facilities such as partitions and kitchen cabinets. In a bid to reduce operating costs and provide a safe and healthy environment for workers, developers are increasingly employing green building technology as it has also been proven to increase employee productivity.

Nowadays, so as to meet the demands of clients, offices are designed to feel like home with modern facilities. Quality, ambiance, elegance, and serenity are the driving forces behind today’s growing modern offices.

1. Retail

The retail sector has experienced tremendous growth, mainly characterized by the continued rise in small space. With a growing middle class, and thus more disposable income, international and local developers have quickly grabbed the opportunity to tap into the ready market with the mall concept which has seen Kenya become the second largest in mall space in Africa, after South Africa, with 391,000 square meters.

Notable developments are The two rivers mall, Garden city and The Hub in Karen.

The middle class has also attracted international retailers such as Carrefour, international restaurants such as Burger King and Subway and sports shops such as Adidas.

Additionally, the country is fast urbanizing and as such technology has become a secondary need with Kenya being recognized as one of the leading technology hubs in the continent and also renowned internationally for its one-of-a kind mobile money transfer system. Consequently, online shopping is slowly gaining traction with a high internet penetration rate of 70% and has led to online sites such as Jumia achieving tremendous success.

• Industrial

The Industrial sector, similar to the office sector, has received a gradual change with the changing clientele. who prefer high-quality stock which allows for modern retailing, distribution and manufacturing practices and this has led into modern industrial parks such as Tatu City.

The modern parks are also built in such a way that they allow for a live, work and play concept. Additionally, the new market is demanding for a serene location that is different from the congested Nairobi’s Industrial Area, Baba Dogo and Mombasa Road areas where most of Kenya’s old stock, mostly outdated warehouses, is located.

To achieve this, the new industrial parks are now moving to areas within Nairobi’s periphery such as Kiambu and Machakos counties where they are easily accessible and are still in close proximity to the key airport and railway terminals.

Hospitality

The hospitality sector is a high dependent of the tourism sector, which for the first time since 2012, recorded a 17.8% increase from Kshs 84.6 bn in 2015 to Kshs 99.7 bn in 2016, while the number of international arrivals rose by 13.5% from 1.2 mn in 2015 to 1.3 mn in 2016.

The meetings, incentives, conferences, and exhibition (MICE) drive by the government has been a key role in driving international tourist arrivals who are a major backbone of the hospitality industry. In a bid to diversify their revenue streams, developers are converting typical sites to accommodation facilities for hotel purposes. Additionally, a new concept, dual-branding which involves having two concepts such as serviced apartments and a hotel in the same building is also gaining popularity among investors.

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