Some of the most luxurious residential spaces in Nairobi have had to make do with decreasing prices, with the average declining by 2.9 per cent over the first half of this year.
This was significantly more than the decline of 1.8 per cent in the first half of 2019, pushing the annual decline to 5.1 per cent in the year to June.
Prime residential rents also saw a sharp decline over the same period by 6.55 per cent compared to 1.67 per cent over a similar period in 2019, taking the annual decline to 7.62 per cent in the year to June, a report by real estate firm Knight Frank Africa said.
The Residential Dashboard report said the drop in rents and prices was mainly attributed to the continued oversupply of residential developments, unfavourable economic climate, low liquidity and expatriates returning to their home countries.
Questions on whether Nairobi’s residential space was headed for a bubble, and if the bubble would soon burst, have however been rife for many months.
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“We expect prime residential rents to decline in the second half of 2020 due to the projected negative economic growth, tighter liquidity, continued relocation of expatriates and less disposable income from potential tenants. Prime residential prices are also expected to decline albeit at a slower rate,” read the report.
On the back of a torrid year where Covid-19 decimated an already limping economy, the real estate sector suffered from a host of tenants escaping to less expensive units.
Companies closed down, with others scaling down, and expatriates were seen to anticipate relocation to their native countries to escape the ravages of the pandemic on foreign soil.
However, residential spaces have attracted a lot of virtual viewing from potential tenants bidding to secure more spacious working areas as working from home continues to gain traction.
“While physical viewings were restricted in the majority of the markets, a surge in virtual viewings was observed over the review period. In the short to medium term, we anticipate a flight in the number of expatriates from the continent’s cities to the working from home phenomenon to impact residential demand,” Knight Frank said.
“On one hand, while the flight in the number of expatriates from the continent due to the pandemic is anticipated to lead to a decline in demand for prime residential units, the need for quality living spaces due to remote working is anticipated to result in increased demand for prime residential units.”
The firm said affordable housing demand, especially by young professionals working in African cities, continues to persist in the wake of the Covid-19 pandemic and subsequent measures adopted towards reduced density as a means to curb the spread of the virus.
“As a result, renewed government interventions towards ensuring affordable housing delivery have been observed in countries such as Kenya and Nigeria,” the report said.
Earlier in the year, Mercer’s 2020 Cost of Living Survey ranked Nairobi at position 95 among 209 cities across five continents. It was considered an expensive city for expatriates on this evidence.
The overall Cost of Living Index reflected the prices of over 200 items including food, alcohol and tobacco, domestic supplies, housing, clothing and footwear, home services, utilities, personal care, transportation, recreation and entertainment.
But two months ago, when releasing results of house prices for the second quarter of the year, real estate firm HassConsult disputed that expatriates were fleeing and that that was the reason rents were seen to slow down.
“We did have that instance (relocation of expats) a couple of years ago but that is not happening this time around. I do think that a lot of businesses have been hit at this time and what this means is that the larger properties (that are more affordable) are a bit more flooded and landlords are being more realistic with the rents they can get at this moment,” said Head of Research Sakina Hassanali.
“A drop in Kitisuru, for example, means that landlords are asking for less. There is just a slight correction in that area. Last year, we had rent rises in all these areas and that makes it reach a plateau regarding what landlords can ask for.”
She said during a crisis, the landlords become less aggressive with rental demands.
According to HassConsult, the tough economic times necessitated rent renegotiations with many tenants unable to continue paying the usual rates.
“While advertised prices over the quarter stabilised at 0.2 per cent with mild falls in the apartment and detached house segments, Covid-19’s toll on the economy has reduced incomes with tenants negotiating rents,” said Ms Hassanali.
Close to half of tenants surveyed asked for rent discounts of between 25 per cent and 30 per cent.
“Donholm houses recorded the biggest quarterly drop in rental prices at 4.8 per cent. Sellers avoid rash decisions to avoid making long-term losses on property sales,” she said.
Knight Frank’s report gave an account of 29 cities in the continent, only one of which posted an increase in residential rents in the six months to June.
Lagos saw an incredible 39 per cent increase in rent, a stark contrast to South Africa’s Cape Town and Johannesburg’s 40 per cent declines.
But by and large, residential rents remained relatively stable across the Africa region in the first half of 2020 despite the pandemic and subsequent lockdowns imposed.
Of the cities tracked by Knight Frank, 60 per cent recorded stable (or increased) rents over the first half of the year.
Casablanca (30 per cent), Algiers (15 per cent) and Accra (10 per cent) also had drops in double figures, while the other ones that saw drops experienced very slight changes.
Uganda’s residential market activity ceased in the first quarter of the year as a result of the lockdown restrictions. Here, a mass exodus of expatriates was seen to impact heavily on residential rents.
“Ongoing developments were put on hold as well as any ongoing transactions. The market further suffered a setback due to the mass exit of over 1000 expatriates who constitute the majority of the prime residential tenants,” said Knight Frank.
“The market is set to continue experiencing subdued demand in the short term owing to continued government restrictions on international travel.”