Rising supply of residential homes pushes rents down

A slow uptake and a rising supply of residential buildings pushed prime rents down in 2015. This is even as rents for prime offices remained largely unchanged. This is according to the latest Knight Frank Kenya Market Update for the second half 2015 released on Tuesday this week.

According to the report, residential rents posted mixed results.  Contrary to a 5.1 per cent drop in prime rents, prices for top-end houses went up 2.9 per cent in 2015. This was attributed to poor performance of other investment classes which saw high net worth individuals seek alternative opportunities.

In the office segment, a reduced supply of prime Grade A offices saw a five  per cent decline in absorption of space in the niche in the second half, compared to the first half of 2015. A number of multinationals, particularly in the oil industry, expressed intention to downsize operations, and government agencies such as the Constitutional Commissions – which had been major takers of office space in the recent past – no longer require much space.

However, headline rents for prime offices (the most expensive) remained stable in the period at $21 (about Sh2100) per square metre per month, and were above asking rents for the overall market.

In the shopping centre market, prime retail rents remained unchanged in the second half. At the same time, absorption of formal retail space declined by 45 per cent compared to the first half, largely because major retailers had already secured space in the upcoming developments.

In the hotel and tourism sector, several high-profile conventions lifted occupancy levels to over 80 per cent during the holidays and conferencing weeks. The period also saw new entrants such as Radisson Blu open for business.

Demand for prime redevelopment land remained strong, with real estate agents closing major deals towards the end of the year. Notable transactions included a 1.1-acre parcel of land in Upper Hill that sold for more than $5 million (about Sh500 million).

The Knight Frank report analyses the office, residential, retail, hotel and tourism sectors, as well as industrial property and redevelopment land for the period July to December 2015.

Another report released this week, the Hass property Index for the first quarter of this year showed that land prices in towns around Nairobi rose even as the value of land in Nairobi dropped as attention shifts to these areas.