Nairobi’s Changing Skyline: Commercial Real Estate On The Rise

The Nairobi skyline is among the most recognisable cityscapes in the world. For over 40 years, the iconic upturned hut atop the Kenyatta International Conference Centre (KICC) has helped people immediately recognize the profile of “The Green City in The Sun”. Standing tall at 105 metres, the KICC has become as integral a piece of Kenya’s identity as Mount Kenya and the Masai Mara

Nairobi’s history of towers began with the 20-storey Hilton Nairobi in 1969, the 20-storey National Social Security Fund building in 1973, and the 30-storey KICC in 1974. From 1960 to 1980, Nairobi witnessed a major expansion of skyscraper and high-rise construction, with many of the city’s office towers completed during this period. A near 20-year lull in building construction followed, before picking up again.

Over the last 10 years, the city has experienced something of a renaissance in construction. As at the end of 2013, there were over 20 buildings either topped out, under construction, approved, or on-hold and proposed in Nairobi. At least 85 percent of those stand as tall as 65 metres (15 floors) or more.

This rebirth of property development in Nairobi has attracted global attention. In its 2012 Wealth Report, real estate management company, Knight Frank, ranked Nairobi as the fastest-growing real estate market in the world, outpacing cities like Miami and Monaco. Real estate prices in Nairobi rose 25 percent between January and December 2011. Nairobi was also voted as one of the top 10 cities to watch by global real estate firm, Jones Lang LaSalle, out of 150 cities globally.

Several factors come into play in driving this demand, from local governments to global business interests. Generally, the latter is attracted to Kenya’s strategic position economic and geographic – in the African continent. Recent discoveries of oil and gas in Kenya, Uganda and Tanzania have increased interest in East Africa, as companies move in to take advantage of new opportunities in infrastructure and extractive industry development. Companies in logistics, security and trading have set up offices in Nairobi as a base to monitor and invest in the commodities boom expected in the region.

Commercial office rents have been on an upward trend over the past five years, growing at an annual rate of 14.1 percent, according to Business Daily newspaper. A study carried out by the Mentor Group, a real estate development and management company, projected that 1.7 million square feet of office space will come into the market annually between 2013 and 2015.

The government is actively facilitating real-estate development. In 2011, the Kenyan government, through the ICT Board, announced plans to develop the Konza technopolis, $14.5-billion technology city on 2,000 hectares about 50 kilometres southeast of Nairobi. In addition to this, the government also launched the Lamu Port South-Sudan Ethiopia Transport (Lapsset) project, a rail, road and pipeline network running from the Lamu port on Kenya’s northcoast to the South Sudan and Ethiopian borders. This project will also bring about the development of three resort cities and airports. The offices created by the implementationof Kenya’s new constitution created upward pressure on the commercial real estate market, particularly in the capital city’s central business district and Upper Hill areas. For instance, the new constitution introduced the Supreme Court, which leased an entire newly constructed office block in Upper Hill.

Across the country, county headquarters are under construction, as governors’ and senators’ offices and residences, local county parliaments and associated offices are being set up. Rather than take up space in existing government offices, the county officials are setting up new offices, driving local investment in real estate and inviting investors to set up businesses in their counties.

International investor perceptions about potential opportunities in Africa are slowly improving. Private equity firm Actis is putting up Garden City, a $150-million investment that will be East and Central Africa’s largest shopping mall when it is completed in 2015. Local institutional investors, such as insurance companies, pension funds and asset management companies, are carrying out the development of high-rise office buildings and hotels. CIC Insurance is seeking to raise $34.6 million in the next two years to fund real estate projects and for regional expansion. It will also be building a high-end estate near Tatu City, along the Thika Highway.

The Kenyan Somali community is another key player in the Nairobi real estate scene. Eastleigh, a suburb east of the Nairobi CBD, is at the centre of a network of trade that connects the Arabian Peninsula, Somalia, Kenya and East and Central Africa. According to a report by Chatham House, a London-based think tank, entitled “Somali Investment in Kenya”, members of this community have invested and transformed the suburb into a bustling commercial centre, buying up residential blocks and converting them into modern retail outlets. Indeed, many Somalis in Western and Middle Eastern countries have been attracted by Kenya’s vast business opportunities. Most of the investment centres on family-owned businesses, thought it does extend to real estate as well. This funding from the wider Somali diaspora has been crucial to the expansion of Eastleigh. While the capital investments for small enterprises vary, they typically involve sums of between $3 million and $5 million. Commercial mall companies such as Amal, Baraka Bazaar, Garissa Lodge and Sunshine Plaza fall within this category, with maximum annual turnover of $7 million.

To read more of the article by Joel Macharia click here

 

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