The Covid-19 pandemic fast-track adoption of e-commerce, with an increase in online purchasing and retailers, focused on developing their platforms, particularly in the Food and Beverage space.
The traditional office sector globally is still expected to account for just over half of all cross-border investment transactions.
In Africa, a rotation of assets by investors is expected, particularly private equity, into the industrial, residential, life sciences, and data center sectors.
Nairobi remains the strategic capital of East Africa and the first place international investors list as a preferred entry point into Africa.
In the investment market, new strategies are emerging, including ‘develop to hold’, and more landlords are expected to enter sale and leaseback transactions. This will likely result in greater capital redeployment into the real sector given its favorable outlook. The country has also registered rising demand for alternative residential asset classes.
Mark Dunford, CEO of Knight Frank Kenya, says “The demand for student accommodation and housing for young professionals is soaring. The growing number of undergraduates, a youthful population and an undersupply of formal student housing have seen developers responding by developing purpose-built student accommodation (PBSA).
With the mainstream market still suffering from an undersupply of affordable housing, demand for co-living is likely to continue rising for the foreseeable future. Investors find this sector attractive because of its resilience and strong long-term economic fundamentals.”
ESG Considerations Grow In The Office Market: The report highlights areas of growth and forecasts that could be expected in the real estate industry. In the office market, Knight Frank observed absorption of office space that was previously in over-supply in the lead-up to the covid-19 pandemic.
Some rental growth over the last quarter indicates that a rise in prime rents is expected due to improving occupancy rates and renewed interest from global tenants looking either to set up or expand their operations in Nairobi.
Overall, demand is centered on best-in-class space, with investors and occupiers zeroing in on schemes that satisfy their ESG (Environmental, Social, and Governance) criteria; a theme that is likely to intensify, raising questions about the future of the older, more secondary, non-ESG compliant stock. Despite this, the number of green-certified developments remains low.
The Retail Market: The Covid-19 pandemic fast-track adoption of e-commerce, with an increase in online purchasing and retailers focused on developing their platforms, particularly in the Food and Beverage space. However, traditional retail, especially convenience-led schemes, has also seen a strong rebound in the last six to nine months off the back of easing restrictions and people’s eagerness to get back to life as normal.
The Industrial Sector Outlook: The industrial sector is highly active and remains full of opportunity as one of the asset classes which has benefitted most from the pandemic globally. This has been primarily fueled by the increase in e-commerce, local storage, and data center requirements as well as home markets looking to reduce their reliance on internationally manufactured goods.
Prime Residential Market: The prime residential market is bouncing back, with growth attributed to pent-up demand. After two years of the pandemic, a sense of normalcy is returning with Buyers’ sentiments to get on with life motivating purchasing resumption plans.
There is also an interest from developers who are focused on bringing high-end branded residence projects to the market with the aim of selling units off-plan to both local and international buyers.
Capital Markets: On the investment front, alternative classes such as data centers and life sciences are quietly growing in prominence on investor radars.
Attracting meaningful volumes of institutional capital into Africa continues to prove elusive and recent global macroeconomic events are hampering matters further. However, certain real estate sectors on the continent have demonstrated relative resilience, in spite of the unprecedented global economic headwinds, particularly those that are modern, well-located, and sustainable.
In the short to medium term, a boost in investment volumes in what has been a relatively immature market is anticipated, providing investors with the opportunity to rebalance portfolios, execute business plans, and further their strategic goals. However, the traditional office sector globally is still expected to account for just over half of all cross-border investment transactions. In Africa, a rotation of assets by investors is expected, particularly private equity, into the industrial, residential, life sciences, and data center sectors.