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Kenya

Blow by Blow Account of How Pandemic Affected Kenya’s Real Estate Sector

NAIROBI, Kenya, Jul 14 – An analysis by Deloitte has described the growth of Kenya’s real estate sector as having been turbulent over the past 5 years, ranging from a high of 12.2 percent growth in 2016 to a low of 5.6 percent growth in 2018.

In its East Africa Economies Report 2021, Deloitte reveals that the sector posted a growth of 8.3 percent in 2019 and is estimated to have had a paltry 1 percent growth in 2020 owing to a persistent supply glut and dampened demand.

“The COVID-19 pandemic had several negative impacts in the sector, with the most severe being financing impediments,” the report states.

For instance, a study conducted by the Kenya National Bureau of Statistics in the second quarter of 2020 revealed that 30.5 percent of Kenyans who rented houses were unable to pay their rent on time.

Other severe consequences witnessed in 2020 include a slowdown in collections for off-plan real estate purchases on installment plans and in building approvals as public offices remained closed.

House prices contracted by an estimated 0.2 percent in 2020, attributable to the economic slump which affected both demand and supply in the residential market.

Meanwhile, the office sub-sector was largely affected by the COVID-19 pandemic, albeit the year on-year historical contraction in the sub-sector.

Dwindling demand and high levels of supply saw rental yields decline from 7.8 percent to 7.3 percent between Q1 2020 and Q4 2020.

On the back of remote working and scaling down of operations by companies owing to COVID-19 social distancing measures, demand slowed down further, positioning tenants favourably to acquire lower rental contractual agreements.

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Rental yields averaged 7.1 percent in 2020. Oversupply of office space is expected to see office rental rates decline to USD 8.7/sqm in 2021

The retail subsector witnessed a significant decline in occupancy rates as retailers made strategic decisions to cushion themselves against the negative impacts of the pandemic.

Rental yields declined by 0.3 percent from an average of 7 percent in 2019 to 6.7 percent in 2020.

“The oversupply of retail space, constrained spending power among consumers resulting from a decrease in disposable incomes and a growing trend towards online shopping will consequently force landlords to provide concessions and other incentives to attract new clientele or retain existing tenants into 2021,” the report states.

The report expects retail rental rates to decline to USD 14.6/sqm in 2021.

The industrial sub-sector experienced a stagnation of rental yields in 2020 as a limited supply of prime stock was met by a lack of development activity in the industrial market. Infrastructure development and the integration of new industrial economic zones is expected to spur demand for industrial space between 2021- 2024.

Consequently, industrial rental rates are expected to rise to USD 3.7/sqm in 2021.

The completion of Phase 2A of the Standard Gauge Railway and the construction of an inland container depot in Naivasha is also expected to catalyse growth in the sub-sector between 2021-2024.

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