Kenya

Positive outlook for the office market

Driven by occupiers' preference for flexibility, developers are meeting increased demand by expanding the supply of co-working space in the market, particularly in Westlands, Kenya's primary office hub. Renowned for prime offices, Westlands has recently welcomed new flexible operators such as Regus, Spaces, and Ikigai, reinforcing its status as the nation’s preferred office hub.

Despite the positivity surrounding flexible offices, prime office rental rates have fallen by 15% over the past four years to US$ 13 psm, underpinned by the historic supply overhang.

This trend is however expected to reverse this year as the supply imbalance begins to recede due to rising deal activity. Indeed, average occupancy rates have climbed by 5% to 77% between Q1 2023 and Q1 2024.

Convenience retail on the rise

Traditionally, retailers have focused their attention on well-established malls, predominantly situated in affluent neighbourhoods. However, evolving consumer spending behaviour, marked by a preference for convenience, has resulted in more retailers turning their attention to smaller neighbourhood retail centres in residential areas.

This shift, coupled with reduced disposable incomes and the surge in online retailing, is also prompting retailers to recalibrate their customer outreach strategies. As a result, there has been a discernible decrease in physical expansionary activity and new entrants.

Supermarkets dominate the formal retail market, with prime monthly rents ranging between c. US$ 30- 55 psm. With an average yield of 9.5%, the retail sector stands as one of the top-performing sectors in the market.

Prime residential market remains resilient

Prime rents have sustained an upward trajectory, registering a 5% increase over the last 12-months. Expats who earn in US dollars have benefitted from the strengthening greenback, which has lifted disposable incomes. In turn, this has underpinned demand for more luxurious rental properties, which are now in short supply.

The high levels of demand and dwindling high-end supply is best reflected in the rise in prime three-bedroom apartment rents which have increased by 5% over the last 12 months to stand at between US$ 900-1400 per month.

Similarly, four- and five-bedroom houses have experienced rental rate rises of 6% and 4%, respectively, over the same period and command rents of between US$ 2000-4000 per month, depending on the location, property amenities/features, and the perceived exclusivity of the neighbourhood.

Government initiatives boosting the industrial sector

Government initiatives are playing a pivotal role in bolstering Kenya's industrial sector, aligning with the transformative goals of Vision 2030 to shift the nation from an agriculture-reliant economy to a middle-income industrialised country.

The government has been actively promoting inward international investments through the establishment of Special Economic Zones (SEZ) and Export Processing Zones (EPZs). Nairobi Gate Industrial Park, a pioneering SEZ in East Africa, for instance, includes a fully integrated customs control area, ultra-modern logistics, warehousing built to international specifications, and distribution centres. This innovative 'build-to-suit' concept in Nairobi offers Grade A flexible space, optimal accessibility, efficient circulation, and ample loading facilities with volumetric capacity, all of which are key consideration for occupiers, particularly those of the international variety.

Elsewhere, ‘green-manufacturing’ is rising in prominence as evidenced by the rise in local assembly warehouses for e-bikes and e-motorcycles. Over the past six years, this trend has contributed to heightened demand, which has driven monthly prime warehousing rents up by 20% to approximately US$ 6 psm.