Following a peacefully concluded General Election, stakeholders in the real estate industry, be it investors, developers or even property owners, will be keen on identifying where best to invest their resources.
While the real estate industry has faced many transformations over the years that have made it difficult to pinpoint the most viable investment portfolios, there is one key area that is unmistakably ripe for investment. We’re talking about technology-based real estate. After the Covid-19 pandemic struck, many enterprises had to adopt digital systems to ensure business continuity. When normalcy resumed, these businesses began looking at e-commerce not only as a survival mechanism, but also as a means to generate more revenue.
Meanwhile, consumers became more digital savvy, not only because this enabled them to conduct essential transactions amidst movement restrictions, but also because it afforded them convenience. To capitalise on this shift, a number of international tech giants began to set up base in the country. This reaction stimulated demand for development of tech-specific workspaces, to manage the vast amounts of digital transactions that would now become the norm.
Indeed, just recently in March, Microsoft inaugurated their Sh3 billion Microsoft Africa Development Centre (innovation hub) at Dunhill Towers in Westlands, just three years since Microsoft entered the Kenyan market. In April, Visa opened an innovation studio in Nairobi, their first in Africa and sixth worldwide. The same month, Google announced that it planned to invest in its first ever Africa product development hub in Nairobi. Google’s investment is part of the tech company’s promise to invest Sh116.5 billion in Africa over the next five years. Still in April, Amazon Web Services (AWS) announced plans to set up an AWS Local Zone hub in Nairobi that will improve cloud connectivity. These are just a few of the tech-specific workspace developments or announcements made during the period under review. According to real estate firm, Knight Frank, investment in technology specific workplaces will continue to be an attractive investment option as the country’s digital industry continues to grow. The real estate firm notes that developers and investors should be keen on taking advantage of the digital shift by incorporating the demands of tech-based workspaces, such as large floor plates and sustainability, in their building designs.
Indeed, many investors are capitalising on growing digitisation in the form of access to smartphones, as well as rapid urbanisation to pump more resources into the tech-based real estate market, which is still very ripe in Africa.
“The continent’s urban population is set to grow by 60 percent by 2050, characterised by an increasing technology talent pool and an emerging middle class. With at least half of Africa’s growing population expected to have internet access by 2030, and legislation encouraging data localisation, the demand for technology workspaces is set to continue growing exponentially,” noted Knight Frank.
The real estate firm also highlights that the recent progress in fibre optic connectivity offers Kenya the ability to leapfrog other countries in establishing a world-class system of network infrastructure which will be fruitful for tech-based developments.
Indeed, the financial and business services, as well as the transport, storage, information and communication services sectors are forecast to add almost 11 million new digital jobs around Africa by the end of the decade. Meanwhile Kenya’s digital economy is expected to contribute nearly 9.24 percent of her total GDP by the year 2025.
The real estate firm notes that data centres could also form a big and lucrative part of tech-based real estate developments, as these will be required to manage the vast amounts of data that shall be processed. Statistics show that Kenya was among the top 5 markets in Africa with the most addition of data centres in 2021, with the main focus being in Nairobi.
The shift to green energy, brought about by the rising energy prices and unreliable power supplies that hamper productivity is also set to significantly influence the growth of the data centre in the real estate market.
“Renewable energy is set to spur growth and ensure accessibility even in the most remote regions across Kenya, while achieving the sustainability goals of the cloud computing powerhouses such as Microsoft and Google,” notes Knight Frank. The real estate firm points out that the calm political environment means that the hotel and tourism sectors could also form lucrative real estate investment portfolios.
According to the Ministry of Tourism and Wildlife, tourism arrivals are forecast to surpass 1 million in 2022. Kenya’s tourism sector is benefiting from returning international visitors.
Compared to the early Covid-19 period, forward bookings in the next four months have significantly increased especially in Mombasa and Nairobi hotels following the wholescale opening of the economy, a reflection of rising certainty and continued recovery of the sector. Recovery within the hospitality sector has been highlighted by the opening or re-opening of several hotels. International brand, Hilton, announced that it will open a new hotel, Kwetu Nairobi, under Hilton’s Curio Collection.
Closer home, the Ministry of Tourism announced that the construction of the Sh11 billion Ronald Ngala Utalii College and Hotel in Kilifi is underway. Meanwhile, in April, Nairobi’s Fairmont Norfolk reopened after 21 months of closure, as did Fairmont Mount Kenya Safari Club and Radisson Blu, Upperhill, in May.
Other real estate segments likely to be lucrative for investment include student accommodation or hostels due to a gradual increase in student enrolments, hospitals, due to the challenges in accessing quality healthcare, and industrial due to increased market activity.
“Away from the office and retail sectors, the industrial sector showed some promise with increased industrial activity and the growth of industrial parks in different parts of the country,” notes Knight Frank.
Green homes are also gaining ground as energy efficiency becomes an important consideration while purchasing a home. Recently, the British government invested Sh5.2 billion in the development of 10,000 green housing units in Kenya, aimed at reducing the negative environmental impacts of urban living for low-income households.
Knight Frank notes that these segments of the commercial real estate market could witness exponential growth in the coming years, however, there are a number of factors that still pose a threat to this growth. These include the war in Ukraine which has resulted in reduction of disposable incomes and increase in risk of investment. The war has also resulted to increase in cost of building inputs such as cement and steel.
Climate change also poses extreme challenges for the region given its exposure to weather-related events and the reliance on rain-fed agriculture. Situations such as floods or drought that can lead to lower economic yields for any country generally make it a less attractive investment destination.
“Investment in adaptation is therefore of paramount importance, but the green transition also provides new opportunities for Africa given its potential for renewable energy. Environmental, Social and Governance principles are an increasingly global focus for real estate investors, and we expect this to spur capital flows towards green rated buildings,” notes the property agency.
