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Design & Interiors

Middle-class downgrade from pricey apartments

An apartment block in Kileleshwa
An apartment block in Kileleshwa, Nairobi. FILE PHOTO | NMG 

At one point, Kenya’s city residents may have probably sung along to ‘The Jeffersons’ theme song ‘Movin on up, to the deluxe apartment up in the sky, having finally gotten a piece of the pie.’

But as Covid-19 eats into incomes, a majority of those who were paying high rents in plush apartments are moving to smaller, cheaper or unfinished homes in the outskirts.

Movers say there has been a shift in the market and Kenyans are no longer relocating to deluxe apartments as before.

Nellions Moving and Relocations company says a recent surge in home relocation in the wake of the coronavirus pandemic has either been a downgrade to cheaper neighbourhoods or homes built out of the city, for retirement.

“There has been an increase in people moving houses compared to last year. More people are moving from apartments to their own standalone homes even when some are still unfinished,” Cosmas Kamuyu, the founder of Nellions Moving and Relocations told BDLife.

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Pricey houses are losing tenants who were resorting to smaller houses and own-homes to save on their monthly incomes, the Kenya Bankers Association Housing Price Index noted in the first quarter report of 2020.

“There was a modest 33 percent rise in demand for bungalows even as demand for apartments and maisonettes contracted by 95.9 percent and 57.1 percent respectively. Taken together, these shifts in trends reflect buyer's adjustment as affordability remains a crucial concern in the housing market,” Kenya Bankers Housing Price Index read.

The coronavirus pandemic has hit the homes segment hard, as workers face pay cuts, job losses, and unpaid leave, setting off a chain reaction that will reverberate in the market for a long time to come.

A state survey by the Kenya National Bureau of Statistics (KNBS) shows that seven out of ten Kenyans had difficulty paying rent in May.

About 37 percent of those who defaulted were unable to pay rent while 23 percent paid partially and another 8.5 percent were hopeful of meeting the landlord’s obligations, reflecting the impact of restrictions to curb the global Covid-19 pandemic on workers’ incomes.

In the commercial property, sector realtors are also facing a reckoning, forced to slash prices for up to 50 percent and renegotiate leases downwards as the pandemic ravages real estate.

Ben Woodhams, the managing director of Knight Frank, a real estate agency said hotel industry and retail had taken the biggest hit from limits imposed by governments on movement, stay-at-home orders, and a general decline of purchasing power that has slumped footfall.

“Generally, speaking tenants have been good about paying their rent, landlords have been good about understanding tenants’ situations, and landlords have also been having their situations. While the tenant is talking to his landlord because he suddenly cannot pay rent, the landlord is also talking to his financiers. Everybody is talking to everybody else and negotiating and generally, it has been working well,” Mr Woodhams said.

In the hotel industry he said, there has been severe disruption caused by the closing of the borders and the lack of movement from Nairobi and beyond.

He said shopping centres are witnessing three categories of clients, those that are not affected very much like supermarkets, those that have been affected badly because the footfall has gone down, which is most of them and then those that have been forced to close down by government such as gymnasium, cinema, and casinos.

“What we have been doing, is talking to those in category one, we have been giving rent concessions to those in category two up to 50 percent and those in category three we have been dealing with them on a case to case basis,” Mr Woodhams said.

He said in the office sector Knight Frank has seen some tenants affected more severely than others, but generally, the office market has not been as sensitive to the rent as those in the retail market with fewer office tenants asking for rent concessions.

“We see rental collections across our office portfolio generally better than the retail portfolio,” he said.

Mr Woodhams is optimistic that things will pick up in August once restrictions are loosened and travel picks up with tourists both locally and internationally.

The Knight Frank boss says the industry is also experiencing restructuring of leases especially those that are up for renewal as tenants negotiate for lower rents which will inevitably adjust market prices for a long time to come.

“That is happening, but I wouldn’t say so much with the anchor tenants, a lot of them are on turnover leases anyway. I would expect to see where a tenant has one or two more years to run, that tenant will say to their landlord can we talk, we renew our lease now, we change the rent slightly but we commit to a longer lease. So the landlord wins because his property has slightly more value with a longer lease and the tenant wins because his overheads are reduced, so this is how these negotiations are working,” Mr Woodhams said.

But not all restructuring has been smooth or parting ways has been amicable. The family of late billionaire Nelson Muguku has sued Africa’s biggest supermarket chain, Shoprite Holdings, for Sh520 million in lost rent just months after the retailer closed shop at The Waterfront Karen mall.

“I think the Waterfront is not Covid-19 related, it’s just an oversupply of retail in Karen, led to a lower than expected basket size and turnover for ShopRite. The anchor tenants have been trading very well particularly in March when everyone was panic buying, the shopping centres were trading their stocks off,” Mr Woodhams said.

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