- Infrastructural developments such as improved roads, utility connections, upgrades of key airports;
- Stable GDP growth which has averaged 5.4% over the last 5 years against a Sub-Saharan average of 4.1%;
- Demographic trends such as rapid urbanization at 4.4% p.a against the world’s 2.5% and population growth averaging at 2.6% p.a; and
- High total returns averaging at 25.0% against 12.4% in the traditional asset classes.
These factors have therefore led to the development of unique trends across the various real estate settings, as investors sought to gain high returns and buyers sought aspirational lifestyles and quality products.
COMMERCIAL
The Kenyan office sector has grown rapidly over the past decade, in tandem 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 Sub-Saharan Africa.
As the sector grows, it’s witnessing new trends due to the clientele changing its preferences 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.
A smart office is also a new trend that has changed the office space area. With amenities like an equipped gym, Cafeterias, and entryways for people living with disabilities. 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.
The retail sector has grown tremendously, characterized mainly by a continued rise in mall 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. The most notable developments include the Simba Gate Mall -Kericho & Eldoret, GreenSquare Mall- Kericho, Two Rivers Mall, Garden City Mall, and The Hub 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 & Kilimall achieving tremendous success.
Similar to the office sector, the industrial sector has been receiving a gradual change with a changing clientele who prefer high-quality stock which allows for modern retailing, distribution, and manufacturing practices and this has led to modern industrial developments like Tea Factories and Milling Plants. Additionally, the new market is demanding a serene location that is different from the congested Capital where most of Kenya’s economic buzz revolves, and now investors are overlooking the congestion and moving towards the Rift Valley and taking advantage of the available resources and labor. To achieve this, the new industrial developments are now moving to areas within the capital’s periphery such as Nakuru County and Kericho counties where they are easily accessible.
With a rapidly growing population and more so, an increasing middle class, the residential sector has recorded the highest demand with the nationwide housing deficit standing at 200,000 units annually and an accumulated deficit of over 2 million units. However, the largest demand has been for affordable housing to cater to the 61% of urban dwellers who live in slums, and a shortage in student accommodation accounts for 40% of the deficit. Therefore, we have witnessed more developers 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 counties such as Kericho and Nakuru counties becoming hotspots.
The hospitality sector is largely dependent on the tourism sector which has been experiencing rebounding volumes. For the first time in 2012, earnings 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) driven by the government has played 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.
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 offer returns on a seasonal basis to clients. The concept, known as agribusiness, entails agriculture activities, agro-insurance, complete farm management services, and a guaranteed market of produce.
In conclusion, with the continued interest in the Kenyan property market by both local and international players, continued investment in infrastructure, and improvement of the legal environment, the Kenyan real estate sector is definitely poised for further growth in the long term.
Article content and statistics Originally from Cytonn Investments.
