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Kenya’s Real Estate Sector

Nairobi-Kenya June 21st, 2016: Kenya’s Real Estate Sector grew at 12 per cent between 2011 and 2015, contributing an average of 7.5% to Kenya’s GDP growth over the same period.

And despite the relatively high lending rates, the non-performing loans (NPLs) attributable to the real estate sector have remained relatively constant over the same period, an indication of the robust credit quality within the sector.

 It is expected that loans to the sector will continue to increase on account of the low percentage of NPLs attributable to the sector.

On the other hand, the industrial sector remains underserved with demand outstripping supply in spite of Nairobi experiencing a development boom across majority of its commercial sectors.

Speaking during the release of Britam’s Asset management report, Kenneth Kaniu, the CEO, Britam Asset Managers said the increasing contribution of real estate to GDP indicates that the sector continues to grow in prominence and is key to future economic growth.

“As the economy gears toward growing at 5.6 percent, the real estate continues to be resilient and bullish.”  Britam Towers

“The current supply for the industrial sector still consists of old, inefficient quasi warehouse/office type structures and therefore this poses an opportunity for the developers to pursue a new sector of the real estate,” said Kaniu.

At the same time, the sustained demand for office space outside the Nairobi CBD has led to the establishments of peripheral office nodes within the city.

The CBD has seen a transformation of tenant profile over the past 10 years as most corporates are replaced by Higher learning institutions. Occupancy rates are above 95% mainly due to its centrality, coupled with access to complimentary services.

“Majority of Nairobi office nodes are firmly positioned in the peaking and rising phases. The increased supply of new office space in Westlands, Kilimani and Ngong Road has seen them shift from a rising phase to a peaking phase. Mombasa Road is in a falling phase which is generally a tenant-favorable market, “said Kaniu.

Meanwhile, the expected supply of office space in 2016 is projected at 3.8 million square feet: “We expect an unprecedented supply of close to 3.8 million sq. ft. of office space in 2016. The driver behind this supply has been mainly due to speculative development on the back of a positive economic outlook. The supply is however unevenly concentrated in the Grade B and Grade C classes with Grade A still being largely underserved,” Kaniu.

The high supply of office space is expected to peak in 2016 before bottoming out in 2017 and rising again in 2018 with Westlands and Upperhill leading in the supply

Kilimani and Parklands are the other nodes that will contribute greatly in this supply. Approximately 75% of this supply will be for pure letting while the residue will be left for fractional sales.

The uptake level in 2015 increased by 3% to 1.33 million sq. ft. from 1.30 million sq. ft. in 2014

Waiyaki Way and Westlands registered the highest uptake levels in 2015 for new office delivered at 81% and 62% respectively.

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