Kenya’s real estate sector is set for significant growth in the coming months, BMI Research, a global firm that provides macroeconomic, industry and financial market analysis in 200 markets across the world, has confirmed.
Growth in the sector is anticipated to be steady until 2026, recording an annual growth of 6.2%.
The industry is expected to record a growth rate of 8.7% as per the end of 2017, a report from East Africa-based investment services group, Fusion Capital revealed.
Kenya’s real estate and construction sector have collectively received Ksh54 billion ($520 million) in the last two years from three top Chinese companies, which include AVIC International, China Wu Yi Limited and Twyford Ceramic.
Fusion Capital noted that the country’s newly elected government has promised to create 500,000 new low-cost homes by the end of its second term.
“The development will be supported by various administrative and policy reforms that will reduce the construction costs and improve accessibility to mortgages,” the investment group said in one of its latest reports.
Fusion Capital analysts noted that Kenya’s economic growth and infrastructure development have increased over the past decade.
They said that increased urbanization, coupled with increasing incomes, have led to a 65% rise in consumer spending, these factors have pushed the retail real estate sector to grow five times in the last decade.
Between the years 2000 and 2008, Nairobi – Kenya’s capital city – added 72,000 square meters of the retail real estate, while between 2009 and 2017, the financial hub added 351,900 square meters of the retail real estate.
The presence of global banks and a robust financial services sector also contributed to the growth of retail real estate in the country.
“Reportedly, vacancy rates in Nairobi have only reduced below 10% after two to three years of operation and as a result many of Nairobi’s newer developments have taken more time than expected to mature,” said Fusion’s report.
The analysts, who include Michael Kimondo – Head of Treasury Operations at Fusion – stated that even though Nairobi currently has an oversupply of retail space, Kenya’s strong growth potential is expected to generate demand in the city’s real estate sector.
However, the oversupply of retail spaces is expected to exist in the near future, which along with increasing costs, long investment tenors and slow rate of retail stock utilization temper investors’ expectations of high returns in the short term.