Nairobi rental prices on the rise

November 18, 2009
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, NAIROBI, Kenya, Nov 18 – The influx of Small and Medium Sized companies into the Central Business District (CBD) in search of commercial space is likely to continue pushing up the rental prices in the market, an analyst has said.

Stanbic Investment Management Chief Investment Officer Anthony Mwithiga says the demand for office area by these firms coupled with the improved business environment in the CBD would continue to be a key driver of the high rental yields.

“CBD has improved in terms of security, lighting and cleanliness and I think the rental prices are holding and also because the landlords are now able to collect more rent from smaller sub-let units,” he told a media briefing on Wednesday.

Instead of letting out a single floor as was the case a few years ago, many landlords in the CBD are now opting to subdivide it into small rooms that can accommodate more tenants and thus maximise on returns.

“The smaller traders are now being seen by major landlords as more efficient and the rents are now being collected not on a quarterly basis but a weekly and monthly basis,” he said.

Despite the fact that this move has strained some amenities such as toilets, the trend seems to be gaining popularity among the property owners thus locking out ‘anchor’ tenants such as supermarkets and banks.

“The issue of an anchor tenant is fending off,” he said while explaining that such occupiers rent the bigger portion of ground floor building and pulls every one in.

The other portion is being occupied by mostly academic institutions that have bought at least three big buildings in the last 12 months.

This trend reverses the situation experienced three years ago when major corporations and embassies moved away from the CBD and put up their own buildings outside the city causing rental prices to drop.

Rental yields in Kenya have been on an upward trend in the last eight years with an average of 10 percent being extracted from such property which is at par with neighbouring countries.

However, Mr Mwithiga added the returns on residential rental buildings have been falling as evidenced by figures between May and September this year primarily because of a demand and supply mismatch that has seen investors with property for sale being put up for rent.

“There has been an oversupply of rental properties in the medium and high end so you can find that in the same neighbourhood someone moves from one property to another for a lower rent. Historically if you do that you pay a higher rent,” he argued.

This is a short term trend which should even out in the next 12 months, the officer said.

Meanwhile, Mr Mwithiga said many companies were looking forward to the enactment of the Real Estate Investment Trusts (REITS) draft Capital Markets Authority regulations in the market which would allow many investors to get into the property market.

He explained that with the REITS which is a pool that owns property and which allows retail investors to put their money in units, people with as little as Sh1000 would also be able to own property.

Currently anyone particularly pension schemes wishing to put up a high end property would be required to have a minimum capital investment of Sh500 million and Sh50 million for a low end building.

“Smaller pension funds will now have access to property investment through REITS,” he said.

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