Kenya, with the largest industrial base in East Africa, offers a compelling investment opportunity. Over the years, Kenya has attracted numerous investors due to its strategic location, diverse economy, and entrepreneurial spirit. As a regional financial hub and the gateway to East Africa, these factors are pivotal for investors. Notably, the real estate sector, driven by foreign investment, has exhibited steady growth, as evident in the 2022 trends.
In this article, we will analyze the real estate industry’s performance from 2022 to 2023 and provide predictions for the market in 2024. We will also discuss how these forthcoming trends will impact investors and developers.
GROWTH OF THE REAL ESTATE SECTOR
Kenya’s real estate sector has seen substantial expansion, with its contribution to the GDP rising from 10.5% in 2000 to 13.8% in 2016. Several factors have contributed to this growth:
- Infrastructural Developments
- Rapid Population Growth and Urbanization
- Economic Recovery Post-COVID-19
- Increased Investor Confidence
- INFRASTRUCTURAL DEVELOPMENTS
Enhanced infrastructure has been a driving force behind Kenya’s real estate sector’s growth. Notable developments include new and upgraded roads, as well as key airport enhancements. According to data from the Central Bank of Kenya, the construction sector posted a 6.4% performance in the second half of the year, a slight decrease from the 6.8% recorded in the same quarter of 2021. This sustained growth can be attributed to the government’s continuous investments in infrastructure projects.
A significant milestone was the commissioning of the 27.1km Nairobi Expressway on July 31, 2022. This expressway not only facilitated regional investments but also significantly bolstered the country’s economy. Consequently, there was a substantial surge in housing demand, with increases of up to 15% in areas like Athi River and an impressive 67% in the bustling Westlands region.
RAPID GROWTH IN POPULATION AND URBANIZATION
As per data from the World Bank, Kenya’s population stands at 54 million and is growing at a rate of 2.3% per annum, surpassing the global average of 1.0% per annum by 1.3 points. This population growth directly influences the real estate sector, particularly in the demand for rental housing. Regions with notable demand for rentals in Nairobi include Westlands, Kilimani, Kileleshwa, Karen, Ngara, Kiambu Road, Ruaka, Riverside, and Nyali on the coastal side.
The Kenyan economy has gradually recovered from the impacts of COVID-19, recording a robust 7.2% economic growth, as stated in the Central Bank’s Economic Report. This recovery is attributed to improved business health. The ripple effect has been felt in the commercial real estate sector, resulting in increased demand for office space. Furthermore, there has been heightened demand for storage warehouses as import and export activities resumed.
INCREASED INVESTOR CONFIDENCE
Kenya’s real estate industry stands out by offering superior returns on investment compared to other jurisdictions. Additionally, foreign investors find it easy to access Kenya’s real estate market, as they are allowed to acquire “commercial class” land. Crucially, foreigners can own real estate in their names, subject to certain restrictions. The Lands Act (6/2012), the Land Registration Act (3/2012), and the Constitution (2010) collectively grant the right for anyone to purchase and possess land in Kenya, individually or jointly with others.
TRENDS TO ANTICIPATE IN 2024
COMMERCIAL REAL ESTATE
With the improving economy and better business health, the Kenyan office market has rapidly expanded. There was a significant 30% increase in office demand in H1 2022, with an average of 2,700 to 3,500 leads during the year. Anticipated trends include the growth of serviced offices. Evolving consumer preferences are driving demand for office developments meeting international standards. Office design and space dynamics are continually evolving, prompting developers to offer semi-fitted offices with amenities like kitchen cabinets and walls.
- Warehouses and Industrial Parks
As Kenya emerges from the COVID-19 restrictions, the import and export industry has regained momentum. This resurgence has led to increased demand for warehouses within the country. However, the modern market seeks warehouses in peaceful areas, shifting away from crowded and outdated warehouses in Nairobi. Consequently, new industrial parks are strategically relocating to the outskirts of Nairobi, including areas like Kiambu and Machakos counties. These locations maintain proximity to major airports and train hubs, ensuring convenience for businesses.
RESIDENTIAL REAL ESTATE
The surging population in Kenya continues to fuel the demand for housing, resulting in an annual nationwide housing deficit of 200,000 units. Rental properties dominate the housing market, with 80% of the urban population residing in rentals, while only 20% own their homes.
As Kenya steadily returns to normalcy following the challenges posed by COVID-19, the real estate sector has showcased positive growth throughout 2023. With a more sophisticated buyer base, developers must adapt to evolving demands. The sector anticipates a promising year ahead, brimming with opportunities for investors and developers alike.