BY VICTOR ADAR
Lots of things are happening in town with a spot check revealing how most businesses are proceeding to set up base in leafy suburbs as opposed to staying in CBD offices. What is seen fuelling the move is traffic congestion, which in some areas of Nairobi, is severe.
As more and more investors opt to move, the race to turn in cash in real estate sector is increasingly gaining momentum so much that according to construction, project and development management firm, Mentor Management (MML), the boom in completions this year as far as office space is concerned, is coming three years on against the back drop of record space planning applications seen nearly three years ago.
In 2015, just over 2 metres square feet of new office space was completed in the city a time when the demand for new space has remained almost constant, rising from 1.3 metres per square feet in 2014, to 1.33 in 2015.
The side most people don’t see is the supply of new Grade A space which was constant in each of 2013, 2014, and 2015, at 1 metre per square feet. Further, the supply of new Grade B space rose from 631,400 square feet in 2013, to 725,991 square feet in 2014, and is now forecast to reach 2.24 metres of new space this year.
MML’s Chief Executive, James Hoddell, says that the gradual shift makes office market opportunities, for example, the next big investment adding that the surge in office completions is up 65% on the previous record set in 2011, which is now likely to create oversupply in Upper Hill, Westlands and Waiyaki Way.
In total terms, it could take over 4 years for the market to absorb this kind of supply. That is why reimagining investments amid this kind of trend means that under-utilised land must be turned into valuable assets, and developers ought to work on projects with the aim of enticing this lot that is moving to the outskirts of town.
And what players call a “ building glut,” developers are still offering very few options that tenants would love. “Nairobi may not end up with its own Sandton, but instead, it may now have a number of concentrations in office space around the outer city,” says Hoddell.
Some how, it is not just about office space as some suburbs are catching the eye of developers keen on not only building commercial and retail properties but also high-density residential houses with the aim of making profits. There are hundreds of businesses and individuals that have migrated to satellite towns in Athi River, Karen, Ngong, Thika, Ruaka and even Limuru to cut commuting and parking costs.
At the same time, the drive to occupy areas that had been hampered by overcrowding and vehicle snarl-ups especially on Mombasa Road is increasing thanks to the opening of the Southern Bypass.
Housing market is on the rise as prices continue the upward cycle to record a 4.2% growth and 14.6% increase over the year. Semi-detached houses appear to support the trend recording a strong annual rent rise of 17.1% as apartment dense suburbs see rent price corrections with a place like Westlands recording the highest drop in asking rents at 2.5% followed closely by Syokimau recording a similar 2.3% drop during the same period. It is a revolution that is reshaping not only how and where to put up a development but also the areas to go to when scouting for land.
While the town centre still host a good number of businesses, the shift to areas that were once perceived as low end is a good thing. Experts in the property industry are convinced that the record levels of new investors picking areas outside the city with big projects taking off in satellite towns are likely to stay for long as opportunities to make good returns are huge.
Research and marketing manager for HassConsult, Sakina Hassanali, says that the key thing is pricing. Citing Donholm’s land price leap of 9.3% in the quarter as shown by Hass Property Index report for 2016, the manager says anxiety has been building on how the role of infrastructure upgrades has been impacting on land prices – what we see along Mombasa Road and with the areas near the bypasses – as forward looking developers move to take advantage of the improved accessibility. “A bigger market is able to buy that land,” she says.
“If you have land in Ruaka, you will have, say, 100 buyers who can buy. But same size of land when in Nairobi would attract, say only two buyers. When land prices per acre are increasing but are still affordable, speculators will buy and wait for price appreciation to kick in. So basically people who are buying land in the cities are developers, those buying outside are investors looking for capital gains.”
New fashion suburbs, as she calls them, Ruiru, Ruaka… are taking precedence as others like Eastleigh are now becoming congested. Despite a 0.2% drop in land value in the city with highest price decrease seen in Eastleigh where an acre currently goes for an average of Sh256.9 million from Sh277.8, it is a good thing to go satellite towns.
Kitisuru also saw a marginal drop in terms of land prices with an acre attracting Sh74.1 million compared to Sh74.7 million in December last year as per findings by Hass Property Index. Heavy levels of on-going construction in areas that were once for the low end market is an indication that times are changing, with opportunities coming up all the time, left, right and centre.
“Pricing for land is driven by land usage. Another biggest drive of land prices is access as distance is no longer kilometres, but minutes. In Karen for example, houses are stand-alone. So when you have a suburb with low density you get low prices. And people buy land to gain from appreciating land prices – that’s what you see in Ruaka,” says Ms Hassanali.
