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Kenya’s super rich cut down on commercial property investments

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Nairobi Expressway. PHOTO | State House

The number of wealthy Kenyans with investments in commercial real estate has plummeted to below 10pc among those surveyed by property consultancy firm, Knight Frank.

The Wealth Report 2024 released by the firm indicates that the country’s High Net Worth Individuals have continued to show less interest in commercial property segment owing a stagnation in yields as well slow rental growth.

“Over the past few years, the office sector has grappled with an oversupply situation, leading to stagnating rental growth. The diminished potential for lucrative returns may have deterred HNWIs from allocating a significant portion of their investment portfolios to commercial properties,” the report states.

Interest in commercial real estate in Kenya by the super rich has further been dampened by the less demand for office space by firms who are now opting for remote or hybrid work model leading to low demand in commercial property.

Additionally, HNWIs have been discouraged from investing in commercial property on the back of higher construction costs which surpass residential projects.

“This financial barrier may deter HNWIs and their clients, especially in an environment where obtaining financing has become more expensive,” Knight Frank said.

However, while interest in commercial property plummet, HNWIs are now redirecting their investments in profitable sector lead by farmlands at 77.5pc, hotels and leisure 69.pc, private rented residential 58.6pc, student housing 52.7pc and retail 50pc.

Other sectors with increased appetite for investments include healthcare, education, development land, offices, data centres, logistics and real estate debt.

According to Knight Frank, 60pc of HMWIs are now investing in renewable power sources, and around half investing in increased nature and biodiversity and seeking sustainable certification and energy efficiency ratings.

“This shift towards greater sustainability even echoed into Kenyan HNWI’s investments of passion, with a strong shift from cars to art, now favoured by over 70 percent of HNWIs as their top collectable,” said Boniface Abudho, Research Analyst, Knight Frank Africa.

Going into the year, the firm says interest in commercial property among the wealthy will continue to dwindle below 10pc owing to persistent challenges in the sector.

“This continuation of cautious sentiment can be attributed to ongoing challenges within the commercial real estate sector. The historical oversupply of commercial spaces, particularly in the office sector, continues to be a prominent factor.”

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