The recovery of the real estate sector continued to gain traction, with increased activity and stronger performance witnessed across all asset classes in the past five months to June 2022,driven mainly by increased business activities as a result of the post-pandemic reopening of the economy.

In May, the office sector witnessed increased traction, with local and international companies taking up space and/or setting up offices within the Nairobi Metropolitan Area. CCI Global, a Business process outsourcing firm, announced a partnership with Gateway Real Estate Africa Ltd (GREA) to develop CCI Global’s custom-designed new offices at Tatu City, set for completion in the fourth quarter of 2023. The development comprises a Grade A office building and two levels of underground parking to anchor Tatu Central, the business district of Tatu City.

This move comes only a few months after CCI took up six and a half floors of office space at the Garden City Business Park. Max International, a  nutrition supplements distributor also took up space in the business park, demonstrating Nairobi’s status as the preferred destination for multinational companies in the region, and showcasing the resilience of Kenya’s office sector, attributed to growing demand from the finance and banking, co-working and technology, media, and telecom(TMT) sectors. Kenya’s position as a regional hub attracting multi-national companies(MNCs)has cushioned the office sector and driven performance, evidenced by the increased occupancy levels witnessed in H2 2021.

The announcement by CCI also demonstrates the rise of the build-to-suit concept as an alternative to traditional build-to-sale arrangements. Under built-to-suit arrangements, companies enjoy the benefits of custom-designed offices built to their specifications and to suit their business needs, while developers enjoy the benefits of guaranteed offtake and reduced tenancy risks.

Additionally, during the month,Jubilee Holdings announced the purchase of Coca-Cola East Africa’s former head office, a 116,350 square feet Grade A office with 130 parking bays, at a cost of Kshs1.1 billion. The move will see Jubilee’s headquarters, along with its fund management, life, and health businesses move to the 3.2-acre property based in Nairobi’s Upper Hill, which will enable the firm to lease parts of its headquarters on Wabera street. The acquisition of the property signifies the demand for Grade A offices and supports the viability of the asset class.

Despite the various challenges facing the commercial office space such as the sustained supply glut and a shift to remote working, Grade A offices recorded improved performance in H2’2021 after a period of stagnation. We expect this improvement to continue throughout 2022 as economic activities continue to pick up on the back of the reopening of the economy.

During the month, Kenyan Property development firm Heri Homes announced plans to construct 384 affordable apartments on a section of its 200-acre mixed-use development project known as Legacy Ridges in Ruiru. The development will also consist of commercial offices as well as bungalows and maisonettes, and a hotel. Satellite towns offering affordable housing units and easy access to the city continue to attract tenants, thus boosting their performance. Other possible drivers of growth include demand for land for affordable housing, relatively lower land prices and improved infrastructure such as the completion of the Ruiru main sewer project which has increased demand for land by developers.

Overall, we expect the residential sector performance to remain stable throughout 2022, supported by the projected favorable economic environment and containment measures which have reduced the uncertainty brought about by the pandemic and resulted in the stabilization of incomes as investment activities increase.

The recovery of the hospitality industry continued gradually in the month of May evidenced by the reopening of hospitality facilities such as Radisson Blu’sUpperhill hotel, after being shut down for 16 months. The 5-star 271-room hotel however reduced the number of staff by 30% in the wake of reduced demand, which is yet to get back to post-pandemic levels. This development follows the opening of The Norfolk in April 2022 following a 21-month closure arising from financial constraints brought about by the Covid 19 pandemic.

Despite the gradual recovery of the hospitality industry, players continue to struggle evidenced by the announcement by Hilton Hotel to shut down its iconic Nairobi CBD hotel, which has been in operation for more than 50 years.

CONCLUSION

Overall, we expect the real estate sector to remain resilient in 2022 as the economy continues to improve following the containment measures put in place to control the pandemic which has resulted in resumption of investment activities.

Grade A offices performance is expected to remain stable driven by demand from MNCs and local companies, leaving older stock with higher vacancy rates. Occupancy rates are however expected to fall upon completion of stock currently in the pipeline. The residential sector is expected to remainstable with focus on affordable housing as the government and key stakeholders continue the push for universal housing. In the retail sector, aggressive expansion by retailers in acquiring new units as well as taking up spaces previously occupied by troubled retailers such as Tuskysis expected to cushion the sector.

Despite this, the real estate sector continues to be constrained by several factors such as the struggling economy and high cost of living which could mean less to spend on housing. The incoming electionsare also expected to affect performance as developers and buyers adopt a wait-and-see approach. Other factors include the high cost of development land in urban areas and insufficient trunk infrastructure especially in satellite towns.