Declining demand for Nairobi’s high end residential properties, intensive retail and office construction, and continued roadblocks in developing the city’s much needed low cost housing, ranging from Sh1m-Sh4m, are now requiring real estate investors and developers to identify niche opportunities in order to make returns, according to a joint real estate report issued Thursday by investment bank Dyer & Blair and real estate specialists MML Developments.
The report comes shortly after Knight Frank’s annual wealth report found that residential and commercial property now account for more than a third of the average ultra-high net worth individual’s (UHNWIs) investments, with 54 per cent of real estate agents questioned saying their clients had increased their allocation to property over the last 10 years, and 40 per cent expecting further increases.
With 30 per cent of ultra high net worth individuals in Africa likely to consider a property purchase in 2016, “the need for well informed investments with a favourable risk return balance in the real estate space is now paramount,” said Linet Muriungi Head of Research, Dyer and Blair.
In its first joint industry report with MML Developments, the investment bank today delivered a range and detail per sector that is new to Kenya’s real estate analysis.
“The aim is to create an initial platform of reporting that is both comprehensive and detailed, as the basis for the ongoing creation of a ground breaking investor information service on real estate,” said Mr James Hoddell, CEO of MML Developments.
The report, which cites a fall in occupancy rates in high end residential rentals and higher levels of vacancy in Grade B office space, points to slackening demand in the last 18 months in the city’s most wealthy suburbs, as diplomatic missions downsizeor relocate, at the same time as aid budgets come under pressure, delivering additional administrative and staffing cuts.
“This has pushed back high end properties onto the market that had previously been let long term,” said Mr Hoddell. “New and high quality homes are still selling and letting at higher speed, but this slackening in the market sees Grade B, older and lower quality detached houses and villas now experiencing some vacancies.”
The report also noted that: “Nairobi has also seen unprecedented levels of new building in retail and office space, even as shopping malls have begun to report some falls in foot traffic and sales.”
“Against this backdrop, the opportunity in investment terms remains low cost housing, which has been out of reach for many self-funded developers based on prevailing interest rates of 15 per cent. For cash rich investors, not carrying financing costs, this property offers the potential of returns that exceed many competing investments,” said Mr Hoddell.
In the low cost market, demand is highest for 2 and 3 bedroom end apartments, followed by 1 bedroom apartments, states the report.
Other areas which offer pockets of opportunity or development in the city are serviced apartments, directed substantially at foreign corporates seeking a toehold in the East African market, while limiting the costs of expensive hotel stays; and the industrial property market, as manufacturers turn increasingly towards import substitution and local sourcing, generating a need for local manufacturing and warehousing buildings.
“The key for cash investors is now the knowledgeable selection of distinctive real estate investments with a clear end market,” concluded the report’s partners.