Kenya’s commercial property market remains in the doldrums, with the value of non-residential buildings approved in the 11 months ended November 2023 by Nairobi County falling below the pre-pandemic levels.
The latest data published by the Kenya National Bureau of Statistics (KNBS) shows that the value of non-residential buildings stood at Sh31.5 billion in the review period.
This was less than half of the Sh71.5 billion recorded in a similar period in 2019. The value of the approvals fell to Sh44.8 billion in the same period in 2020 and declined further to Sh26.5 billion before rising to Sh32.2 billion in 2021.
A few office developments were expected to be completed last year largely due to the historic oversupply, with investors wary of putting money in this class, said Knight Frank, a property consultancy, in a report for the first half of 2023.
“Additionally, the increasing cost of capital amidst struggle by developers to service their loans has made financial institutions very conservative in supporting large real estate developments, hence the subdued real estate activities,” said Knight Frank.
However, the market for residential buildings seems to be on a recovery path with KNBS showing that homes approved for construction in Nairobi in the review period rose to Sh163.6 billion. This is more than the Sh128.2 billion approved in 2019 and which was the previous peak.
Commercial property market, which had been roiled by oversupply before Covid-19 has been hit with a tough economic environment that has seen small businesses go for smaller spaces even as some companies adopt remote and co-working to cut costs.
“Even before the pandemic in 2019, there was already an oversupply of commercial and retail in this market,” said Johnson Denge, a real estate investment analyst.
“That accumulated with the issue of the pandemic which elevated the growth of e-commerce or online shopping and the market adopted what you call a kadogo economy (low-end consumer business),” said Mr Ndenge.
Mr Ndenge explained that small businesses were grappling with high operating costs and high taxes, pushing them to smaller spaces.
Moreover, with attractive returns from the risk-free government securities, a lot of investors have opted out of the riskier asset classes such as real estate.
Even as fewer commercial properties, which also include the retail market, a lot of non-residential buildings remained unoccupied even as prime office rents remained static at $1.2 per square foot per month in the first half of last year, according to Knight Frank.
