Real estate dealers look to unlock Industrial Area’s value

Kenya: For the last two decades, Nairobi’s commercial hubs, like Upper Hill, Westlands and Mombasa Road, have witnessed major developments as local and international corporations in the economy seek new premises for their expanding operations.

The city’s skyline has been re-drawn, particularly in Upper Hill where the country’s top financial service providers, like Kenya Commercial Bank, UAP Insurance and Britam, are engaged in a race to define the top.

By the end of this decade, Upper Hill is set to be the country’s financial district and home to dozens of skyscrapers.

Frozen in time

However, even as the city’s commercial addresses continue to balloon to accommodate the growing demand for office space, one of the crucial districts in the city seems to have frozen in time.

Industrial Area has remained largely unchanged for several decades, and now, real estate developers are stating it is time stakeholders unlocked the value of the country’s iconic and oldest commercial district.

Industrial Area is home to several popular brands in the manufacturing sector, including Unilever, Proctor & Allan, Unga Group and Crown Paints.

And as Nairobi’s Central Business District (CBD) has continued to grow, the pressure has been diverted towards commercial nodes bordering it, which explains the growth of Upper Hill and Westlands. So why not Industrial Area?

“Industrial Area is too close to the CBD. If you look at any city around the world, you will notice that the industrial zone is not really at the heart of the CBD as is the situation in Nairobi,” said Ben Woodhams, the managing director of the Kenyan division of global real estate firm Knight Frank.

Mr Woodhams added that the expansion of the CBD has seen land values in Industrial Area balloon, with the costs of remaining in this district becoming very high for manufacturers, increasing the overall cost of operations.

Another problem facing manufacturers in this hub is the country’s growing population, which has seen demand for goods soar. This has prompted manufacturers to expand their operations, putting pressure on the existing infrastructure.

According Crown Paints CEO Rakesh Rao, the road network has become dilapidated, with incessant traffic jams adding on to the costs of business.

“Traffic is a major issue here. While in the past a truck could do several trips in and out of this place, you often find these days that you can only do one or two trips because the rest of the time your consignment is stuck in traffic,” he said.

Real estate experts now say moving the manufacturers to places like Athi River and Machakos, and building office blocks in the spaces they currently occupy in Industrial Area, would ease the congestion in the CBD and give manufacturers more value.

“We are already seeing this happening and we are excited to see developments like Machakos Textile City because it shows a re-organisation of the industrial city for the best real estate value,” said Woodhams.

Commercial oversupply

However, there are several challenges to be overcome before this re-organisation occurs and it might take longer than anticipated.

In the first place, most of the manufacturers premised in Industrial Area own the land they operate on, and the trend is to hold on to it until its value goes up before selling it or transferring it to developers.

In addition, there has been talk of an oversupply of commercial space in the city, particularly in Upper Hill and Westlands, and developers are wary of putting up more capital-intensive projects in and around the CBD.

A report by real estate think tank Mentor Management Ltd (MML) on property trends in the last half of 2014 stated that Nairobi is facing a looming glut of office space.

The report warned that the current “overbuilding” would see close to a fifth of the city’s newly built offices without occupants by the end of 2016.

Woodhams, however, said the challenge, particularly in Upper Hill, is caused by ongoing road construction projects in the area, and would not cloud developers’ ambitions to put up more office space.

“We are having some trouble letting space in Upper Hill because of the construction works, but this is a short-term problem and people can see that there is light at the end of the tunnel,” he said.

“This is all critical infrastructure being put up, and we have to go through this painful process to reap the benefits that will come with it.”