Real estate posts high productivity as challenges hit wholesale, retail sectors

Bondeni Affordable Housing project in Nakuru. [File, Standard]

Real estate has the highest labour productivity in the services sector according to a new report even as the closure of some retail stores dented the industry.

The latest Kenya Economic Report shows the high labour productivity across the counties that have been segregated into arid, semi-arid and non–ASAL (Arid and semi-arid lands).

This is against the other sub-sectors: wholesale and retail, transport and storage, information and communication, and professional and technical services.

Others are administration and support services, public administration and defence, public health, financial services, education and accommodation and food services.

The high labour productivity is directly influenced by the technical skills associated with the sector with a majority of labour in real estate possessing the fourth skills level.

The report by the Kenya Institute for Public Policy Research and Analysis (Kippra) shows that almost half of the labour in the real estate sector has a higher education.

“Several key sectors within the economy have a pronounced demand for skills at the third and fourth skill levels, indicating the importance of advanced skills. For instance, close to two-thirds of workers in the professional, scientific, and technical activities possess a university degree and above in terms of qualification; the real estate sector at 43.26 per cent; financial and insurance activities at 37.73 per cent; and financial intermediation services indirectly measured at 37.63 per cent,” reads the report.

This output is against the smaller number of workers the subsector has or will attract in future compared to wholesale and retail.

According to the report, whilst real estate has the highest labour productivity in the services sector, wholesale and retail, a key growth indicator for the former, has the lowest.

The report shows the real estate sector, which entails buying, selling, renting and operating self-owned or leased property, and activities by real estate agents, had a workforce of 3,146 in 2023 compared to 132,192 for wholesale and retail.

In 2024, 147,089 for the wholesale and retail sector and 3,500 for real estate.

“A disaggregation of labour productivity for the services sectors showed that the real estate sector had the highest labour productivity for all categories of counties,” the report says.

“In the arid counties, the low employment levels in the real estate sector vis a vis the output explains the higher labour productivity.”

Kippra explains that the output for the real estate sector in arid counties is mainly the operation of self-owned or leased real estate in the towns and urban centres.

“Wholesale and retail trade has the lowest labour productivity in all categories of counties, despite having the highest share of employment among the services sectors,” the report says.

Real estate’s labour productivity in arid counties stands at 48.44 per cent, a range of 18.99 and 12.48 per cent per cent in semi-arid counties and 16.93 per cent in non-ASALs.

The real estate sub-sector grew by 7.3 per cent in 2023 compared to 2.7 per cent for wholesale and retail. The 7.3 per cent growth is almost equal to the 7.0 per cent growth of the whole services sector

According to the report, a drop in wholesale and retail also resulted in the shrinking of the real estate sector.

For example, in 2020, at the height of Covid-19, the wholesale and retail sub-sector had a negative growth of 0.4 per cent which also caused real estate to drop to 4.1 per cent in the year compared to 6.7 per cent in 2019.

In 2022, when Tuskys was at the height of its financial woes with auctioneers on its back, the wholesale and retail sector reported a 3.5 per cent growth compared to eight in 2021.

That year, real estate recorded a 4.5 per cent growth from 6.7 per cent in the previous year. The Kippra report talks of how the closure of several retail stores in the country negatively impacted real estate growth.

The report states that in 2018, the total number of supermarket branches was 257, but by 2023, the closures, particularly by Tuskys, Uchumi, Game Stores, Nakumatt, Choppies, and Shoprite, resulted in a substantial reduction.

It documents that Tuskys closed 59 branches, Uchumi 35, Game Stores three, Nakumatt 65 and Choppies 15 while Shoprite closed four. As a result, the number of branches decreased to 189 in 2022, and further to 171 by December 2022.

“However, the number increased to 227 after the expansion of branches of Naivas, Quickmart, and Carrefour,” reads the report.

Naivas is currently the largest retailer in the country in the number with 105 branches across the country occupying previous locations that were operated by competitors.

Kippra attributes the decline to financial turmoil and economic challenges (recurrent losses), weak management, changing consumer behaviour towards online platforms (e-commerce), intense domestic and international competition, macroeconomic pressures (for example high rates of interest, large operational costs, slow growth of incomes and currency depreciation) and strategic missteps such as over-expansion, weak inventory management, neglect of e-commerce and weak supply chain management.

“This has had far-reaching implications for the retail market, the real estate sector, and the economy,” Kippra explains.

The think tank says closures resulted in the loss of jobs for a significant number of employees, contributing to an already growing pool of unemployed individuals which has a serious ripple effect on the incomes of individuals, and consequently consumer spending and overall economic growth and productivity.

“The reduction in retail outlets has impacted the real estate retail market, with a decrease in the demand for retail space and storage facilities. This could lead to a decline in real estate investment returns in addition to a fall in rental incomes, and reduced demand for both the commercial services and property values,” the report states.