Nairobi’s prime real estate segments have witnessed a major slowdown in the past five years, pointing to the potential peak of both sales and rental prices for the coveted suburbs.
According to an index by real estate consultancy Hass Consult, which tracks house, apartments, and land sales and rental prices across 18 suburbs and 14 satellite towns, areas such as Kitusuru, Runda, Kilimani, Westlands, Riverside, Kileleshwa, Upperhill and Lavington have registered significant price corrections since 2019.
House rental prices in Kitisuru have, for instance, contracted in each of the last five years while apartment selling prices have slumped by the same measure across Kilimani, Lavington, and Riverside.
Land prices in the lucrative nodes of Riverside and Upperhill have also contracted in each of the last five years.
Cumulatively, land prices in Riverside have fallen by 15 per cent in the five years to Sh315.2 million per acre as of December 2023 from Sh370.6 million in December 2019.
In Upperhill, the cost of an acre of land has slumped by 11.3 per cent to reach Sh478.2 million from Sh538.9 million five years ago.
In an interview at Britam’s board room on the 29th floor of the iconic Britam Tower which hosts Grade A office spaces, the group managing director and CEO Tom Gitogo noted property prices in the high-end segment may have likely boiled over after constant macroeconomic challenges in recent years.
“There is no doubt that the property market has overheated because the temperature of the property market is usually determined by the growth rate of the economy. While we might not have enough properties, the rate at which the property market was growing in valuation and pricing was ahead of what our GDP could accommodate,” he noted.
Among the macroeconomic headwinds plaguing the country include the elevated cost of capital with interest rates rising in the past two years and a slump in the domestic exchange rate, which has upset developers who fetch sales and rent mostly in Kenya shillings against loans secured often in US dollars.
This has seen some of the developers and proper managers requesting payment in dollars adding to the fumes of fears of a dollarised economy.
At the same time, the suburbs which are home to most office spaces have suffered the wrath of office oversupply turning the segment into a tenant market with leaseholders dictating rental prices.
The saturation of office spaces has seen developers putting a pause to new developments in the segment reducing the momentum of growth for prime real estate.
According to Knight Frank, there remains a small pipeline of key development projects as oversupply concerns remain sticky.
“Nairobi has historically grappled with an oversupply of office space. This combined with the rising cost of capital, has led developers to adopt a ‘wait-and-see-stance’ stance towards new investments. Consequently, the second half of 2023 saw minimal office completions, with notable exceptions including the Kanha building in Westlands and the government-owned Talanta Plaza in Upperhill. The actual development pipeline remains limited, with the majority of projects being speculative.
Mr Gitogo ties the recovery of prime real estate to the improvement of macroeconomic indicators which he expects to drive new demand.
The tough business environment over the last two years has for instance tied the hands of developers and property managers with the situation dissuading new property investments while repricing of sales and rental prices on existing buildings has been discouraged.
“With the expansion of GDP gradually, we should see a resumption of growth in the property space. If you look out of the window, you will see not less than four cranes in the Upperhill area with office blocks coming up. I would like to believe that they have done their research. The outlook is that the sector will have a bounce back but not at the overheated levels we saw previously,” added Mr Gitogo.
Prime real estate nodes nevertheless face stiff competition from satellite towns such as Juja, Kitengela, and Ongata Rongai.
Regarded sometimes as the bedroom for Nairobi’s Central Business District for their utility as homes for the city’s working class, satellite towns have continued to attract new buyers especially the middle class looking to put up their own homes or invest in apartments.
Last year, house prices in Ongata Rongai and Athi River rose by 15.4 and 15 per cent respectively, beating the price appreciation in all of the suburbs.
In land pricing, satellite towns continue to outperform suburbs according to the Hass property index.
“In Nairobi’s 14 satellite towns, the average land price growth stood at 3.7 per cent over the fourth quarter of 2023, still running ahead of Nairobi’s city suburbs. Satellite towns continue to outperform Nairobi’s city suburbs in land price growth as land averages Sh201 million per acre against the city's Sh28 million rendering satellite land accessible to a wider demand base,” notes Hass Consult.
Nairobi’s prime real estate/suburbs encompass the nodes of Gigiri, Karen, Kileleshwa, Kilimani, Kitisuru, Langata, Lavington, Loresho, and Muthaiga among others.
