•A tough economic environment due to the Covid-19 and oversupply continued to exert pressure on the residential, commercial, retail and hospitality real estate sectors.
•Knight Frank’s Kenya Market Update–First Half 2020, indicates the conditions pushed prime property rents and values down.
Rents and sale prices for prime residential properties in Nairobi maintained a downward trend in the first half of 2020, according to a report by real estate agents Knight Frank.
This was due to unfavourable economic climate, continued oversupply of residential developments and low liquidity.
Exit of expatriates, who are the main target clients for this niche market, returning to their home countries due to the Covid-19 pandemic, has left developers and landlords at pains the survey shows.
The firm's 2020 half-year market update shows prime residential prices in the capital city fell by 2.9 per cent over the first half of the year compared to a decline of 1.8 per cent in the first half of 2019, pushing the annual decline to 5.1 per cent in the year to June.
Prime residential rents also declined over the review period by 6.55 per cent compared to 1.67 per cent over a similar period in 2019, taking the decline to 7.62 per cent in the year to June.
“Potential buyers and tenants were hesitant to view properties physically, and real estate firms like ourselves provided virtual tours to offer walkthroughs of properties they’re interested in," Knight Frank head of agency Anthony Havelock said yesterday.
Knight Frank Kenya’s website registered a 47% increase in users over May and June compared to the previous year, the firm notes.
The retail sector was hardest hit due to the pandemic with prime rental rates decreasing from US$4.6 (Sh492) per square foot per month to US$4.2 (Sh450) per square foot per month.
The decline in rental rates was mainly attributed to the continued oversupply of retail space in certain locations, the current economic climate and reduced consumer spending due to a reduction in disposable income.
Consumers also changed their shopping patterns due to the Covid-19 impact with many turning to e-commerce.
Footfall increased in June 2020 due to the adjustment of curfew hours and easing of other government directives.
Occupancy levels for retail centres averaged 80 per cent with more established malls recording higher occupancy levels of 90 per cent.
"The retail market continues to primarily remain a tenants’ market,"the report notes.
In the office market, prime rents in Nairobi remained unchanged in the first half of 2020 at US$ 1.3 (Sh140) per square foot per month.
The stagnation was mainly attributed to the current economic slowdown.
“As a majority of companies started working from home towards the end of the second quarter of 2020, most organisations put on hold office space requirements as they focussed on operational rather than capital expenditure," Knight Frank managing director Ben Woodhams said.
Over the review period, the serviced office sector was negatively impacted in the short term, but an increase in demand is expected in the long term as occupiers opt for flexible office solutions.
The hospitality sector is showing signs of recovering into the second half of 2020 due to additional government support to restore destination confidence, resumption of flights and revised tourism packages, the firm notes.
Other factors include easing of restrictions from major source markets, and aggressive domestic, regional and international tourism marketing.
Looking forward, Knight Frank notes that the long-term outlook of the market and each asset class is largely dependent on government support and various real estate stakeholder’s responses to government directives.
Under the review period, fewer transactions were finalised as a result of land registries being closed, due to Covid-19, and potential buyers opting to postpone land purchases.
"We expect prime residential rents to decline in the second half of 2020 due to the projected negative economic growth, tighter liquidity, continued relocation of expatriates and less disposable income from potential tenants," the report states.
Prime residential prices are also expected to decline albeit at a slower rate.
As the economy slowly reopens, land registries are expected to fully resume, allowing pending land transactions to be finalised.