Property Market Fundamentals for Nairobi

Nairobi’s property market fundamentals have been outlined in the latest East Africa macro-economic overview by international property firm JLL. In the report, the country’s GDP is expected to contract by 1.9% during 2020 according to Oxford Economics.

According to JLL, East Africa is the fastest growing economy in the real estate sector over the last decade from an economic development perspective.

Office Property Market Fundamentals

Nairobi’s office market has come under severe pressure as vacancy levels continue to rise. Vacancy rates ranging between 20%-35% have been reported and have subsequently eroded rental levels across all office segments.

Despite the oversupply, approximately 90,000 sqm of new stock is expected to come to the market annually over the next 2-5 years.

According to JLL, the construction boom between 2012 and 2019 saw Nairobi’s total office stock experience average annual growth in excess of 20%. This was driven by aggressive private sector investment, while many multinationals sought to establish headquarters in East Africa’s commercial hub.

“Annual prime asking rentals range from US$145-US$180 per sqm, depending on quality and location (JLL, 2020). In line with market corrections, however, recent lease renewals have been reported between US$90 and US$110 per sqm p.a.,” says the report.

The opportunity is that dampening property market fundamentals in the office sector over the short to medium term will make it possible for emerging occupiers to enter Kenya’s commercial environment.

“We subsequently anticipate that new brands and businesses will take up space in the Kenyan economy,” it states.

Retail Property Market Fundamentals

Nairobi’s retail markets, one of the largest and most developed in sub-Saharan Africa, currently holds more than 700,000 sqm of formal stock.

Average retail sales have increased by 7.6% per year since 2014, fueled by continuous sector growth in the sector which has not escaped international retailers.

According to JLL, the market has been oversupplied for the last three years, driving down rents by 10% to 15% over the period.

New stock coming to market over the past 5-years has remained limited, with most of the new supply classified as convenience facilities in

“New stock coming to market over the past 5-years has remained limited, with most of the new supply classified as convenience facilities in established areas such as Kilimani Mall,” the report states.

The current pipeline for further development includes the 8,000 sqm Nairobi Global Trade Centre (GTC Mall) in Westlands which is set for opening in Q3, 2021.

Industrial Property Market Fundamentals

Kenya’s warehousing and logistics market growth has been supported by rapid infrastructural development initiatives like the likes of Nairobi’s northern, eastern and southern bypasses, Inland Container Depots (Naivasha), and the Standard Gauge Railway (SGR).

The steady growth in A-grade warehousing stock is expected to place downward pressure on older B-grade and sub-grade stock performance.

Annual asking rentals range between US$65-US$95 per sqm for A-grade facilities, with vacancy rates recorded as high as 20%. Asking rentals for B and C-grade warehouses currently range between US$25 and US$40 per sqm p.a. while renewed industrial lease agreements have been reported at US$30 per sqm.

“Occupancy levels are likely to drop amongst lower-grade industrial stock over the medium term, as newer, better quality spaces come to market,” reads the report.

Residential Property Market Fundamentals

In the last two years, private developers have demonstrated a growing interest in building entry-level apartment products priced below US$80,000.

This follows a slowdown in the relatively saturated high-end market, where sales and rental prices have remained constant and occupancy rates have eroded since the 2017.

According to the research, residential demand in Nairobi is fueled by a strong population growth rate (3.4% per year over the last ten years) and a steady decrease in household size (averaging 2.9 people per household).

“The growth of the sales market is primarily limited by the lack of access to affordable housing finance, with mortgage rates offered by banks averaging at 13%,” it says.

Current residential property market fundamentals support the 2019 National Census which shows that the city remains a tenant-driven market, with only 9.3% of the population owning their main residences. The remaining 90.7 percent of residents rent their units.

See Property; DEW DROP HEIGHTS, MILIMANI