Prime Rent Yields in Nairobi Defy Security Concerns

Nairobi’s high-end property rents shrugged off security concerns and oversupply in some locations to rise by up to double digits last year, helped by corporations, international retailers and a growing consumer class.

A new edition of the Africa Report, published by Knight Frank, shows prime rents across commercial and residential segments in the city rose by between six per cent and 10 per cent in 2014.

For instance, prime office rents, which averaged $21 (Sh1,939) per square metre per month, increased by eight per cent in the year. Industrial properties, which let at an average $4.20 (Sh388) per square metre a month, also rose by a similar margin.

According to the Africa Report 2015, office construction in Nairobi has been boosted by Kenya’s relative political stability and strong economic growth boosted by expansion of local and multinational companies.

“… even though office take-up rates in 2014 were around 20 per cent down on the previous year, prime rental levels increased by 5-10 per cent,” the report says.

The report adds that Grade B office space moved into oversupply from a position of stability in the previous year, while there still exists “a relative shortage of Grade A developments” in the city.

Retail space posted the strongest growth in rents across all prime property segments in Nairobi, rising by 10 per cent in the year. Prime retail space was letting at about $48 (Sh4,432) per square metre per month.

Knight Frank says Kenya has recorded increased interest from international retailers looking to enter the market either solely or through partnerships with local investors.

The firm cites French retailer Carrefour, South African store Game and British multinational Debenhams as among those set to debut in the Kenyan market this year.

“Demand for retail space has been driven by the increasing spending power of Kenyan consumers and rising demand for overseas brands,” Ben Woodhams, Knight Frank Kenya managing director, states in the report.

The high demand for retail space has sparked off new developments, while pre-let levels for new space remain strong. Knight Frank says Garden City Mall on Thika Road, set to open in May, for instance, was 96 per cent pre-let as at December 2014.

The Africa Report 2015 shows Nairobi’s luxury residential market was the worst performer, with yields averaging six per cent in 2014 for a four-bedroom executive house in the high-end estates such as Runda, Muthaiga and Westlands.

Such houses in prime locations, usually in demand among top corporate executives and expatriate staff, cost $4,720 (Sh435,845) monthly on average to let.

“The residential market witnessed marginal increases in capital and rental values during 2014. However, there were signs of a slowdown in transactions in the prime residential market towards the end of 2014,” says Woodhams.

“Activity has been affected by an oversupply of prime property and security concerns, which have been most evident in Nairobi and Mombasa.”

However, Woodhams says, the low- to middle-income residential market remained resilient, with demand in the segments “still outstripping supply”.

The weighted average rent yield across the four segments places Nairobi sixteenth in a list of 35 African cities ranked by Knight Frank.

Luanda in Angola is the most expensive city in Africa in terms of rent increases.

A square metre of prime office space costs $150 (Sh13,851) per month, while a four-bedroom executive house is let at $25,000 (Sh2.31 million) a month.