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Coronavius, oversupply and reduced spending bring prime property rents down

NAIROBI, Kenya, Jul 29 – A tough economic environment due to the COVID-19 pandemic and oversupply continued to exert pressure on the residential, commercial, retail and hospitality real estate sectors, forcing prime property rents and values down, according to Knight Frank’s Kenya Market Update – 1st Half 2020.

Prime residential rents and sale prices in Nairobi continued a decline in the first half of 2020 due to unfavourable economic climate, continued oversupply of residential developments, low liquidity and exit of expatriates, who are the main target market for this niche sector, returning to their home countries due to the pandemic.

 Knight Frank’s Kenya Market Update – 1st Half 2020 shows prime residential prices in Nairobi fell by 2.9 percent over the first half of 2020 compared to a decline of 1.8 percent in the first half of 2019, pushing the annual decline to 5.1 percent in the year to June.

Prime residential rents also declined over the review period by 6.55 percent compared to 1.67 percent over a similar period in 2019, taking the annual decline to 7.62 percent in the year to June.

Anthony Havelock, Head of Agency said: “Potential buyers and tenants were hesitant to view properties physically, and real estate firms like ourselves provided virtual tours to offer walkthroughs of properties they’re interested in. Knight Frank Kenya’s website registered a 47 percent increase in users over May and June compared to the previous year.”

The retail sector was hardest hit due to the pandemic with prime rental rates decreasing from US$4.6 (Sh492) per square foot (sq. ft) per month to US$4.2 (Sh450) per sq. ft per month.

The decline in rental rates was mainly attributed to the continued oversupply of retail space in certain locations, the current economic climate and reduced consumer spending due to a reduction in disposable income.

Consumers also changed their shopping patterns due to the COVID-19 impact with many turning to e-commerce.

Footfall increased in June 2020 due to the adjustment of curfew hours and easing of other government directives.

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Occupancy levels for retail centres averaged 80 percent with more established malls recording higher occupancy levels of 90 percent.

The retail market continues to primarily remain a tenants’ market. In the office market, prime rents in Nairobi remained unchanged in the first half of 2020 at US$ 1.3 (Sh140) per square foot per month.

The stagnation was mainly attributed to the current economic slowdown.

Knight Frank MD Ben Woodhams said: “As a majority of companies started working from home towards the end of the second quarter of 2020, most organisations put on hold office space requirements as they focussed on operational rather than capital expenditure.”

Over the review period, the serviced office sector was negatively impacted in the short term; however, we expect to see an increase in demand in the long term as occupiers opt for flexible office solutions.

The hospitality sector is showing signs of recovering into the second half of 2020 due to additional government support to restore destination confidence, resumption of flights, revised tourism packages, easing of restrictions from major source markets, and aggressive domestic, regional and international tourism marketing.

Looking forward, the report states that the long-term outlook of the market and each asset class is largely dependent on government support and various real estate stakeholder’s responses to government directives.

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