The latest real estate outlook for prime property in Kenya shows that the coronavirus pandemic has accelerated certain trends that were already in evidence prior to COVID 19. The analysis by Knight Frank Kenya shows the short-term and longer-term implications of the crisis on various segments of the industry so far.
“We have been monitoring the market closely and our agents and occupier services teams are working hard to ensure we provide the necessary assistance to all our clients as we are in a rapidly evolving situation. These are challenging times and we must all innovate to ensure business continuity,” Knight Frank Kenya MD Ben Woodhams said.
Commercial office operators witnessed a 68% decline in office space absorption in the 1st quarter of 2020, compared to the 4th Quarter of 2019. However, this was a 60% increase compared to the 1st quarter of 2019.
“Before the pandemic, we had witnessed a good level of inquiries both from international and local corporates, and transactions were underway. Corporates have since placed major decisions on “pause” whilst they assess their position,” says the report.
Knight Frank also said that prime rents remain unchanged at Kshs.130 per sq. ft/month despite the pandemic. There has been an increasing trend of landlords and tenants negotiating flexible payment plans where possible, as cash flow is currently greatly affected.
The report foresees that if the pandemic continues, in the mid to long-term employers may take necessary measures to minimize overheads by downsizing or foregoing their office spaces.
Retail has been one of the most affected sectors in the property market following the massive decline in foot traffic to major malls following stringent government directives and social distancing practices.
The winners in retail have been anchor tenants that provide a one-stop-shop for fast-moving consumer goods have been witnessing a steady stream of footfall as Kenyans visit the spaces to buy essential goods during this time.
The report says that online shopping and deliveries have grown as stores collaborate with delivery partners to offer customers convenience during this period.
“In the short term, some landlords have been considering rental concessions on a case by case basis as they understand the difficult situation, and are exploring ways of preserving their cash flows through service charge management and considering turnover based rentals,” it says.
Hotel occupancies have plummeted to about 20 percent as at the beginning of April, following travel restrictions which has forced some hotels to close temporarily.
The ban on all international flights, with the exception of cargo flights, as a strategy to contain the spread of COVID-19 in Kenya, hit the hospitality sector the hardest, owing to its heavy reliance on tourism and the MICE (Meetings, Incentives, Exhibitions, and Conferencing) sectors.
Adjustments by key players in the hospitality sector include temporary closure, limiting business lines, and laying off or sending workers on unpaid leave until the sector picks up.
There first quarter of 2020 saw a decline in house sales and rental prices in Nairobi. This was mainly attributed to the prevailing macro- and micro-economic conditions coupled with an oversupply in the segment which has resulted in a sustained price correction which continued from 2019.
“We have started to see a decline in prime rental levels during the duration of the pandemic as landlords are prepared to lower their expectations to attract the few new inquiries,” said Knight Frank.
There has been a noted decline in international rental inquiries and by extension the expatriate market as some international prospective tenants have stopped their search and gone back to their home countries for the time being.
However, activity in the residential market has been least affected, driven by an active local tenant pool that is contributing to an increase in digital searches.
Savvy opportunistic buyers/tenants are taking advantage of the current situation to negotiate lower rents and purchase prices with distressed property owners hoping to get a good deal.
“Transaction levels are expected to fall drastically because of the wait and see attitude being adopted by prospective buyers together with the closure of the various land registries across the country,” says the analysis.
The pandemic has shifted the focus drastically to healthcare investments and some for logistics. Although the severity of the effects of the pandemic on Kenya’s real estate sector is still unclear and developing each day, the overall impact will be substantial, and still ultimately depends on its duration and measures that governments, organizations and individuals are taking to mitigate its adverse effects.