Property developers have in the recent days preferred to develop residential buildings which have a shorter payback period as opposed to commercial real estate. Data from the Kenya National Bureau of Statistics shows that the value of residential building plans rose from Sh66 billion in 2010 to Sh154 billion last year. The value of commercial building plans approved by City Hall dropped eight per cent to Sh57 billion last year, from Sh62 billion in 2010.

“The price of land in the city centre has remained high due to speculation, this has pushed most investors away to the residential market,” said Mr Peter Kimeu, the head of projects administration at Housing Finance. Mr Kimeu said the selling price of commercial space has stagnated at between Sh11,000 and Sh15,000 per square foot since 2008 due to building of commercial houses in surburbs close to the city such as Westlands, Upper Hill, Kilimani, and along Mombasa Road, increasing supply of office space and shrinking rental returns. Many businesses have re-located to these suburbs, cooling off demand for office space in the central business district.

A developer who puts up offices in a place like Upper Hill, where the price of an acre of land is between Sh152 million and Sh200 million, would take more than 20 years to recoup his investment compared to between 10 and 15 years in residential areas which have lower land prices.

The cost of constructing one square metre of commercial space is Sh60,000, compared to Sh40,000 per square metre of residential space. “The high value of the projects was also driven by low interest rates for most parts of last year that saw the emergence of many mid-income market residential schemes,” said Farhana Hassanali, a property development manager at Hass Consult.

Speculation has seen property prices along the eight lane Thika Superhighway skyrocket in turn increasing house rents. A two bedroom flat in Zimmerman estate was asking for between Kshs 8,500 and Kshs 10,000 last year but is now going for a minimum of Kshs 15,000 a month. This has encouraged developers who are capitalizing on the demand for houses in Nairobi.

Courtesy;  Business Daily