Market News

Real estate investors shift to warehouses on office blocks glut

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Nairobi City skyline. FILE PHOTO | NMG

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Summary

  • External real estate financiers are now directing their capital to Kenya’s industrial and logistics sector, avoiding the previously attractive office and retail space that they now deem to be oversupplied.
  • Nedbank head of property finance for Africa Gerhard Zeelie told the Business Daily that there is uncertainty over the long term prospects of demand for office space across the continent.

External real estate financiers are now directing their capital to Kenya’s industrial and logistics sector, avoiding the previously attractive office and retail space that they now deem to be oversupplied.

The Covid-19 pandemic has upended demand for office space as more companies observe remote working arrangements for their staff, while a tough economy has also hit the retail space —especially malls — due to reduced purchasing power among consumers.

Nedbank head of property finance for Africa Gerhard Zeelie told the Business Daily that there is uncertainty over the long term prospects of demand for office space across the continent while retail demand exists only in pockets such as Rwanda and Uganda.

In Kenya, he said, industrial developers are actively upgrading industrial warehousing property, which has over the years become fairly outdated, hence this is an exciting focus area for financiers.

“We think that the industrial sector is well-positioned for growth.

“Nairobi has got fairly old industrial warehousing space, albeit rented put at a cheap level, and recently we have seen more modern industrial facilities being constructed,” said Mr Zeelie.

“The industrial sector will grow on the back of more specialised distribution and logistics facilities that businesses are developing. We are also looking at some projects on the residential side, at least at the feasibility stage.”

Nedbank operates a representative office in Kenya, which facilitates cross-border foreign currency financing for various projects from the lender’s South Africa balance sheet.

In the Kenyan real estate sector, the lender has largely financed shopping centres and industrial developments.

Local lenders have also been cautious when lending to the real estate sector due to a high rate of defaults, which has led to an increase in repossessions and auctions of property.

Annualised growth in credit to the sector, which had risen to 9.1 percent in November 2020, slowed down to 5.8 percent in April, Central Bank of Kenya (CBK) data shows.

Mr Zeelie said the only way for the sector to regain its footing is for developers to balance out supply and demand, by avoiding speculative construction that has left the market facing a glut in some segments.

Developers should also repurpose some of their space to fit current demand, even if it means lower returns, which are better than holding idle space.