June marked the end of a strong quarter for the real estate sector that saw improved performance across the industry.

Demand for office space in the Nairobi Metropolitan Area continued to rise, with a high-level analysis of the key nodes of Westlands, Kilimani, and the CBD by NW Realite showing a return to almost pre-pandemic occupancy levels. This has seen an increase in investor confidence in the office sector, resulting in the resumption of investment activities. In June, property developer, Purple Dot International commenced construction of a 14-floor commercial building along Mombasa Road.  Comprising 11 floors of office space, the development is expected to be constructed in approximately 28 months. It is designed with environmentally sustainable features including energy and water-saving measures such as solar photovoltaics, energy-saving lighting, and flow faucets.

Business process outsourcing firmCCI Global also commenced the construction of its new office complex in Tatu City which will host a 4000-seater contact center, the largest such facility in the country. As covered in our May issue, CCI has contracted real estate firm Gateway Real Estate Africa (GREA) to undertake the development to CCI’s specifications. GREA also announced plans to build a second office and retail center in Tatu City that is expected to host its regional headquarters once complete.

In the residential sector, increased activity was witnessed in the affordable housing segment as firms move to bridge the demand for affordable housing units, estimated at 2 million units. In the month of June, Safaricom Investment Co-operative kickstarted construction of Miran Residence, a low-cost mixed-use development project sitting on a 3-acre parcel of land in Ruaka, Kiambu County. The project is expected to be completed in June 2024 and will add 450 low-cost housing units in the market comprising studio units going for Kshs. 2.75 mn, studio lofts at Kshs. 3.9mn,1-bedroom apartments at Kshs. 4.45mm and and 2-bedroom apartments at Ksh. 5.90mn. In the same vein, the Nairobi Metropolitan services announced that it was in the final stages of identifying potential partners for the redevelopment of county-owned estates under the affordable housing initiative.

The upturn in the hospitality industry also continued to gather pace and is attracting international interest, with a report by hospitality advisory indicating that twenty-four global hotel brands are constructing or planning to construct new luxury hotels in the country. This comes as the industry continues to recover on the back of the easing of travel restrictions. The new facilities will add an estimated 3,155 hotel rooms to the market and put Kenya among the top seven countries hosting luxury hotels under development in Africa, alongside Egypt, Morocco, Nigeria, Ethiopia, Cape Verde, and Algeria.

SUMMARY & OUTLOOK

We expect the improved performance witnessed in Q1 and Q2 2022 to continue into Q3, resulting in increased building and construction activities. According to the Central Bank of Kenya’s(CBK)Quarterly Economic Review Q1 2022 report, gross loans advanced to the building and construction sector increased from Ksh. 128 bn in Q4 2021 to Ksh. 138 bn in Q1 2022, signifying the increased investment activities in the sector.

We expect to see further investment activities in the office sector with a focus on Grade A offices in master-planned developments such as Tatu City as investors seek to take advantage of well-planned controlled environments, shared amenities that reduce development costs, and a ready market from residents and businesses in the master-planned developments. In the residential sector, the affordable housing segment is expected to continue witnessing increased activities from private developers as well as government-backed initiatives. An upsurge in MICE(meetings, incentives, conferences, and exhibitions) activities is expected to cushion the hospitality industry and drive performance improvements. In addition, the sector can benefit from increased activities that boost tourism,  such as the World Rally Championship event which saw hotels and serviced apartments in Naivasha record full occupancies for the duration of the event.

Despite these positive trends in performance, the sector continues to grapple with a myriad of challenges occasioned by the harsh operating environment, inflation and high costs of living that have lowered disposable incomes and reduced consumers’ purchasing power. This is partly evidenced by the 5.6%-increase in gross non-performing loans in the real estate sector to ksh. 78.5bn, according to the CBK’sQ1 2022 Quarterly Economic Review.