This archive report was first published on 5 September 2019.
Kenya's property market has taken a hit in the first half of 2019, with local developers facing a decline in earnings. According to Knight Frank's Kenya Market Update First Half 2019 report, prime residential prices fell by 1.8% in the first half of 2019, leading to an annual decline of 6.7% in the year to June.
This is a sharp contrast to the 0.4% decline recorded in the first half of 2018. The decline in prices has led to a decrease in rents of prime residential properties, with a 1.7% drop in the first half of 2019, resulting in an annual decline of 3.3% in the year to June.
The realtor attributes the decline to an oversupply of high-end developments in some locations, such as Kilimani, Kileleshwa, and Westlands. The last three years have seen an increase in the number of apartments in these areas, leading to increased competition and lower profit margins for developers.
Key satellite towns such as Ruaka, Athi River, and Juja have also seen an upsurge in the number of middle to high-end residential homes, further contracting developers' profit margins. The credit crunch, which has affected money circulation and spending power, has also complicated matters in the sector.
Developers have blamed the Banking (Amendment) Act of August 2016 for the lack of liquidity in the sector. The National Assembly had sought to 'help' the public by capping interest rates, but the opposite happened, with local lenders giving the real estate sector a wide berth in favour of government papers.
The continued slump extends to the retail sector, where monthly rents for prime spaces in shopping malls decreased by 5.9% in the first half of 2019. New retail developments have been hard hit, with occupancy levels ranging from 45% to 55%.
Landlords have sought to provide concessions to attract new tenants and retain existing occupiers, including partial contributions towards tenant fit-outs or discounted rentals. The Office Market Snapshot for Kenya by Broll Kenya notes that landlords are willing to adjust their terms of reference to include alternative payment models and attract more clientele in the expanding Grade A office space.
According to Broll, office space developers may need to watch recent developments where corporate tenants occupying owned office buildings are considering selling the premises and either leasing them back or relocating to multi-tenant buildings. The shift towards shared workspaces is also gaining popularity, with serviced office space growing in popularity due to its flexibility.
