Based on insights and engagements with clients and market over the last few months, Britam Asset Managers real estate tracker have highlighted opportunities in strip shopping malls in the counties, but said there is an oversupply in all types of retail space in Nairobi, and in big malls countrywide.
“Beyond the Two Rivers Mall expected to open by the end of this year, no further retail space will be required in Nairobi, as there will be oversupply. However, in areas like Naivasha, Kisumu, Nakuru, Nanyuki and Mombasa, there is a lot of opportunity for strip malls that range from 1,000 to 10,000 square feet,” said Mr Kenneth Kaniu, Chief Executive Officer, Britam Asset Managers Limited.
Manufacturing and Logistic Building
Mr Kaniu also pinpointed manufacturing and logistics buildings as a rising asset category.
“More industrial parks are coming up to satisfy this market, with returns fairly good at 10-15 per cent annual yield,” he noted
In residential real estate, Britam has pointed to ongoing opportunities in middle income housing between Sh7m and Sh20m, and even greater demand for homes below Sh7m.
However, the market for houses below Sh7m presented a problem in effective demand since many potential home owners under such developments do not have the ability to pay.
There is less opportunity in high-end residential property above Sh50m, which is taking longer to sell. But, overall, residential property is drawing strong returns, at 14-15 per cent, attracting ongoing investor interest, said Mr Kaniu.
The focus on industrial real estate has been further developed, with the launch at EAPIS by Mentor Management Limited (MML), of its first ever Industrial Market Report, showing the industrial market in Nairobi absorbing around Sh3bn a year in investments, excluding land costs.
As yet, the industrial sector has not attracted institutional or overseas investment.
But 2015 marked record levels of planning approvals by Nairobi’s County Government of multi-unit, developer-led industrial/warehouse developments, at 280,000m², the majority of which is expected to be delivered in the next two years.
“The industrial market has changed markedly in the last three years,” said Mr James Hoddell, CEO of MML, who described the segment as ‘the next wave” in real estate.
“Previously, almost all industrial premises and warehousing was owner occupied, but this year, two thirds of the completions will be for sale or lease.”
MML reported that Embakasi currently leads in the supply of warehouses for lease or sale, with Industrial Area leading in owner occupied warehouses.
However, in 2015, warehouse take-up was as high in Kiambu County and Mavoko sub-County as in Nairobi, with land proving cheaper in the city’s outer perimeters, which are benefiting from improved accessibility to the airport as a result of the new bypasses.
MML also cited earlier findings on office market oversupply for Grade B buildings in Nairobi, driven by record new openings this year of 3.8m sq ft, but continued demand for the highest quality of Grade A offices.
The surge in office completions, up 65 per cent on the previous record set in 2011 is now likely to create oversupply in Upper Hill, Westlands and Waiyaki Way, for four to six years.
But “the impact of the looming oversupply is set to be felt most heavily in Grade B office space, which is now more than doubling, at a time when businesses are moving to find more accessible and less congested locations,” said Mr Hoddell.
Regionally, Tanzania remains a difficult market to penetrate on non-local land ownership regulations, and the tax regime, said Mr Kaniu.
However, opportunities in residential, commercial retail, commercial office, hospitality and industrial are plenty.
There is also demand across the board in Uganda.
Kenya is well served across serviced apartments, townhouses and gated communities, but the Ugandan market does not have the same kind of diversity, with rental yields and internal rate of return (IRR) across commercial, retail and residential all higher than in Kenya, based on sustained demand.
However, Uganda has a less developed land registry, introducing risk, while Ugandans are also less geared towards shopping, making for fewer opportunities in formal shopping malls, said Mr Kaniu.