Kenya's commercial real estate market faces continued challenges as the value of non-residential buildings approved in Nairobi County remains below pre-pandemic levels.
According to the Kenya National Bureau of Statistics (KNBS), these buildings were worth Sh31.5 billion in the 11 months to November 2023, less than half of the Sh71.5 billion recorded in the same period in 2019. Real estate consultancies point out that very few office developments were completed in the past year due to oversupply and investor caution.
Rising capital costs and conservative stance by financial institutions, with developers struggling to repay loans, are restraining activity in the real estate sector. Construction projects approved in Nairobi during the review period rose to Sh163.6 billion, surpassing the previous peak of Sh128.2 billion approved in 2019. The oversupply problem that existed before the pandemic has been exacerbated by the challenging economic environment.
Small and medium-sized businesses are opting for smaller spaces, and remote work and coworking are gaining traction among companies looking to cut costs.
Real estate investment analyst Johnson Denge said the pandemic has exacerbated existing oversupply issues and shifted the market toward lower-end consumer business models driven by e-commerce and online shopping. Small businesses are struggling with high operating costs and taxes and are downsizing their space.
Investors, attracted by the returns from government bonds, are opting to exit riskier asset classes such as real estate. Despite reduced demand for commercial real estate and retail space, many non-residential buildings remain vacant. Prime office rents have held steady at $1.20 per square foot per month. In the first six months of 2023, several projects such as Principal Place, Karen Green, PTA Complex, The Rock, The Piano, and The Cube were completed, contributing to the surge in the housing market. Some of this increase can be attributed to the approval of more affordable housing options.
