Grim outlook for real estate amid falling incomes

AAK report shows developers holding back on projects, as tenants seek easier rent terms.

Property prices and rents are projected to decline further, as the effects of the coronavirus pandemic continue to be felt in the real estate sector.

This drop will particularly be felt in the high-end residential and commercial segments, with landlords now giving discounts to tenants, according to a report by the Architectural Association of Kenya (AAK) released on Tuesday in Nairobi.

Shelter Afrique CEO Andrew Chimphondah (left) and Mugure Njendu President Architectural Association of Kenya launching Status of the built environment report in Nairobi. Feb 2, 2021. [Jonah Onyango, Standard]

The Status of The Built Environment report expects less capital investment and leasing activity in the coming months.

“A few defaults have been noted among the growing number of tenants using flexible rent payment platforms or those that have landlords willing to offer monthly and quarterly rental payments,” said AAK President Mugure Njendu.

“On the property acquisition side, many payment plans for properties are being extended, while the very small pool of Kenyans using mortgages may note difficulty in meeting payments due to salary cuts and layoffs.”

A dip in building approvals has already been noted, indicating reduced appetite by developers.

Nairobi County, for example, saw a 20 per cent reduction in permit fees between July and December 2020, compared to the previous six months.

The AAK report indicated that Nairobi Metropolitan Services raised Sh215.9 million in permit fees for building approvals in the period against Sh270.9 recorded between January and June.

A total 970 of building approval applications worth Sh50.9 billion were lodged.

Oversupply

AAK foresees a wait-and-see approach in the office sector.

“Over the past few months, decisions to relocate and expand have been placed on hold or abandoned altogether, as businesses adopt a wait-and-see approach,” the report said.

The outlook for the commercial sector is negative, as its performance continued to be constrained by oversupply of 6.3 million square feet of space as at 2020.

“The sector is also facing reduced demand, as some firms downsize due to financial constraints, while others embrace the working-from-home strategy amid the Covid-19 pandemic,” said AAK.

Architect Florence Nyole called for social housing rather than affordable housing, saying the home will now not just be a place to live but also for work.

“I see more demand for houses with green building qualities that can save on water and energy and we see architects also improving their design parameters for such houses to meet the demand,” she said during a panel discussion on Tuesday.

“Kenya does not have a problem of affordable housing but social housing, where anybody earning even Sh6,000 can afford a house. The current programme is targeting a few Kenyans who can afford Sh1 million to Sh3 million, which majority cannot,” she said. 

The government intends to construct 500,000 houses by 2022 under the Affordable Housing Programme.

Despite the negative impact by the pandemic, industrial property segment did well as there was increased demand for storage space.

“Demand noted is increasingly for small spaces within warehouses for short periods as the duration of government directives to contain Covid-19 is still unclear to many,” the AAK report said.  

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