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Property Oversupply Halts Prices and Rents in High-End Market

BY Soko Directory Team · February 19, 2019 09:02 am

Continued oversupply in Nairobi’s prime residential market put pressure on prices and rents, resulting in declines last year, according to Knight Frank’s Kenya Market Update report for the second half of 2018.

Prime residential prices fell by 4.5 percent in 2018, compared to a 0.9 percent drop in 2017, as the segment turned into a buyers’ market.

Rents in the top-end of the market also dropped by 1.3 percent in 2018, albeit a slower decline compared to the previous year’s 2.8 percent slide.

Sustained demand from expatriates and middle- to high-income earners, who are keen on location and quality of houses, helped reduce the decline in high-end residential rents.

In the commercial property segment, uptake of Grade A office space continued apace in the second half of 2018, although prime rents stagnated at 1.3 US dollars per square foot per month owing to the current oversupply.

READ House Prices Record 1.49 pc Increase, Reverses Decline Trend 

The report shows absorption of Grade A office space rose by 63 percent in the six months compared to the first half’s uptake. 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 this increased uptake and a decrease in construction, we anticipate a rental recovery in the medium term,” Ben Woodhams, Knight Frank Kenya Managing Director said.

In the retail property market, prime rents stagnated at 5.1 dollars per 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 center developments ranged at 45-75 percent compared to 60-75 percent in the first half of 2018 as more space opened for trading across the country.

However, footfall in shopping malls rose in the review period 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.

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 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.

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