Oversupply leads to sharp fall in rent and house prices in Nairobi

An oversupply of prime residential properties in Nairobi is applying pressure that’s forcing buying prices and rents downwards, according to Knight Frank in its Kenya Market Update report for the second half of 2018, which could signal a cooling off in the cost of housing in the capital.

Prime residential prices fell by 4.5% in 2018, compared to a 0.9% drop in 2017, as the segment tilted in favour of buyers. Rents in the top-end of the market also dropped by 1.3% in 2018, although a slower decline compared to the previous year’s 2.8%.

Mr Ben Woodhams, Knight Frank Kenya Managing Director said sustained demand from expatriates and middle-to high-income earners keen on location and quality of houses helped reduce the decline in high-end residential rents.

In the commercial property segment, he noted that the uptake of Grade A office space continued rapidly in the second half of 2018, although prime rents stagnated at Ksh130 ($1.3) per square foot per month owing to the current oversupply.

“This report shows absorption of Grade A office space rose by 63 percent in the six months compared to the first half’s uptake,” he said. “Serviced office providers emerged as major takers, with this occupier type gaining traction due to demand from small and medium-sized businesses for flexible and co-working spaces.”

With the increased uptake and a decrease in construction, Knight Frank analysts anticipate a rental recovery in the medium term. In the retail property market, prime rents stagnated at Ksh519 ($5.1) square foot per month, as the segment adjusted to the existing oversupply in some locations.

Occupancy in established malls remained high in the period, while cumulative occupancy for new shopping centre developments ranged at between 45-75% compared to between 60% and 75% in the first half of 2018 as more space opened for trading across the country.

Mr Woodhams said footfall in shopping malls rose as new anchor tenants opened in various locations while international retail brands continued to expand in the Kenyan market. “The market is dictating new rents and prices and we expect that this will boost transactions across office, retail and residential segments,” said Woodhams.

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According to the Market Update Report, in the hospitality sector, global brands continued to venture into the Kenyan market either by opening in new developments or by taking over operational hotels. Major global conferences also positioned Kenya as a top destination for Meetings, Incentives, Conferences and Events (MICE), spurring growth in the hotel and tourism sector.

In the industrial property segment, demand for high quality warehousing space continued to rise in the second half of 2018.