Kisumu County beneficiary of Ksh 217 Billion SGR Mega-project

Kisumu County is set to be the new transport hub in East Africa for investors after being announced to be a beneficiary of the Kshs 217.0 Billion mega-projects that will be strategically located along the Standard Gauge Railway in Mombasa, Voi and Nairobi, Kisumu.

This is after the studies that the government has commissioned to determine the most effective investment option for the projects which will involve putting up of office blocks, hotels, shopping malls and industrial parks.

The proposed undertaking will be done through a mix of joint ventures, franchises and build-operate-transfer (BOT). The BOT option will allow the investors to develop a section of the cities, operate them until they recover their initial capital outlay as well as their profits after which the investors will be expected to transfer the development back to the government.

According to the  weekly report from Cytonn Investments, the Kenya Railways Project will be set on 100 acres in Mombasa, 200 acres in Nairobi and 75 acres in Kisumu, and once completed, Kisumu is expected to be opened up as a major transport terminal in the great lakes region and consequently attract more real estate investors in the region. Nairobi on the other hand will be the greatest beneficiary given the strategic location of the parcel between the CBD and the industrial zone hence being a preferable residential area and consequently attract retail investment.

Cytonn Investments expects the continued success of masterplan developments backed by comprehensive studies to address the needs of the end users as well as sound source of finance.

The continued improvement of transport network by the government such as the Standard Gauge Railway, superhighways and by-passes will also play a major role in ensuring that such developments are a sustainable investment opportunity. This will arise in decentralization from the CBD as a major business hub since the masterplan developments will be a “live, work, play” environment.

Cytonn further reported that over the week, Knight Frank’s market report for the H1’2016, the construction and real estate sectors have continued to thrive resulting in growth of Kenya’s GDP by 5.9 percent for Q1’2016 compared to a 5.0 percent growth for a similar period last year.

The retails segment in Nairobi witnessed stagnation of the monthly rent at an average of USD 48.0 per square meter. This is due to increased retail space supply with more retail space anticipated in the coming years.

Consequently, tenants leasing retail space continued to enjoy flexibility in their lease structures such as zero escalation rates which is a bid by the retail space providers to attract the right tenant mix within the malls. Other key highlights include;

Office space experienced a 28.0 percent increase in the absorption of Grade A & B offices space compared to the H2’2015 and a 22 percent increase compared to H1’2015. However, due to the increased supply, the rents and the selling prices remained relatively stable over the period at approximately USD 21.0 per square meter per month and Kshs 130,000 to 150,000 per square meter exclusive of VAT respectively.

For the residential sector, the prices for high end developments increased by 1.3 percent in H1’2016 as compared to a 2.0 percent increase in H1’2015. The rents for this class of residential property dropped by 8.0 percent in H1’2016 compared to a 0.0 percent change in the similar period last year. This can be attributed to increased supply and the downsizing of operations by firms in the oil & allied sector and decentralization of parastatals which had previously taken up a sizeable Grade A & B office space. On the other hand, favorable interest rates resulted in the increase of mortgage uptake by 11.0 percent in H1’2016.

Despite the stabilization of the asking rents, the outlook for the retail sector still remains positive especially for the already established malls which continue to enjoy customer loyalty in the midst of increased mall supply. The uptake for office space is expected to continue with the upward trend especially for a space range of 1,000-3,500 Sq.ft. while the selling prices is expected to remain unchanged. The company expects the drop in rent for the prime residential units to continue in H2’2016 due to tight corporate budgets and increased supply of high end residential developments.

Read: Kiambu County: Immense Opportunities Available