Nairobi prime area rents near ceiling

Nairobi’s high-end rentals have shown signs of peaking, global property management firm Knight Frank says in its latest briefing.

The Knight Frank Prime Global Rental Index says that while residential rent in Nairobi’s prime areas has been increasing quarter, the pace is starting to slow down.

“Prime rents in the Kenyan capital increased by almost 26 per cent in the year to March, but there are signs the market is cooling off with growth of only 2.1 per cent recorded in the first three months of 2014,” says the briefing.

In the six months between September and March, rents in the city’s prime areas increased by 7.5 per cent.

Between March 2013 and March 2014 rents increased by 25.8 per cent which was the highest increase compared with 16 other cities that were covered in the report.

Knight Frank (Kenya) chief executive Ben Woodhams said a number of factors are driving the decline but expects a pick-up over the coming quarters.

“Some of them (clients) are taking a bit longer to sign because of the security situation but we see this as a temporary situation,” Mr Woodhams.

Insecurity has seen at least the US scale down its locally based staff.

The realtor said that the asking rents by major tenants such as the diplomatic community had reached the apex.

“We think the rents reached a high point that rentals beyond that point would be one-off occurrences rather than normal market situation. The diplomatic missions including the UN which form a sizeable pool of tenants in Nairobi have limits on rental budgets and this too has had an impact on the market,” said Knight Frank’s residential lettings manager Jayne Mugambi.

Dubai was second on the list with rent in the city’s prime areas increasing by 16.4 per cent while Hong Kong was last with a 6.3 per cent decline.

Cape Town was the only other African city listed with rent in the seaside city’s prime area marginally increasing by 0.1 per cent.

Other property reports also expect the Kenya rent rise to slow down.

Hass Consult found that rents for apartments, detached and semi-detached houses in major suburbs increased by an average of 2.3 per cent in the first quarter of 2014.

Hass Consult head of marketing and research Sakina Hassanali said that the rents could still go up but only to the point where landlords who have bought properties through loans are able to break even.

“With the finance blockage also impacting landlords in acquiring new properties, and the rental yields on properties still at less than mortgage interest rates, the race is now on to get rents up to a level where landlords can cover finance costs and not end up making losses,” said Ms Hassanali at the time.