Sustainable projects set to drive Kenya's real estate

East Africa Property Investment (EAPI) summit host Kfir Rusin. [File, Standard]

Sustainable projects are set to be the drivers of Kenya’s property market owing to the rising demand.

Real estate players including developers and financiers feel that buildings that fail on environmental, social, and governance (ESG) compliance risk being “irrelevant” in the future.

This emerged during the East Africa Property Investment (EAPI) summit, themed A Renewed Focus. The summit, said host Kfir Rusin, sought to provide an opportunity for leaders to plan their strategies based on a new set of increasingly entrenched and resilient fundamentals.

These fundamentals include continued improvements in infrastructure development and new statutory reforms in real estate and Nairobi and Rwanda’s Kigali establishing themselves as regional economic and innovation hubs.

Other factors include ESG principles driving investor, consumer and occupier behaviour and the government’s continued focus on initiating and implementing affordable housing projects.

In the meantime, different players in the commercial space continue to make their contributions to the real estate sector, but all with a focus on ESG compliance.

Absa Bank Head of Commercial Property Finance, Africa Region Somaya Joshua said more funding has been extended to Kenya across the real estate sectors including offices, retail, housing and industrial.

“We have increased interests in ESG projects and have had notable successes on qualifying structures in other locations where we’ve been able to structure specific milestones into transactions that, if met, may translate into a funding benefit to clients on a case-by-case basis.”

“These benefits typically flow to clients upon meeting specific targets in terms of solar capacity, water consumption and socially important aspects like transformation and housing,” she said.

Gerhard Zeelie, the Divisional Executive at Property Finance Africa, Nedbank CIB, said future developments are in danger of becoming irrelevant if they are not ESG compliant. “Massively, European, US and Middle East investors are all focused on ESG and it is unlikely that assets will be marketable if they don’t comply with basic ESG,” he said.

Zeelie said Nedbank was actively pursuing opportunities in Kenya and the broader region with a specific interest in retail and light logistics.

Standard Bank Head of Real Estate Finance, Africa Region Niyi Adeleye said it is increasingly critical to consider all aspects of ESG and not just the environmental part of it.

“From an African perspective, we think it is important to consider all the parameters (environmental, social, governance) of the measures as they continue to be topical and relevant as the sector evolves across markets,” said Mr Adeleye.

Standard Bank’s preferred real estate segments need to be relevant to domestic and international capital sources in the mid to long-term horizon, said Mr Adeleye, positively impacting the quality of life, enhancing the creation of social and commercial real estate infrastructure and achieving environmental and social impacts.

The bank seeks to support the development of the real estate capital ecosystems in these markets.

“In this regard, we see interests in the industrial sector, affordable residential sector, corporate accommodation, demand-matched commercial assets and alternative asset classes such as digital real estate, student housing and other similar alternative segments,” he said.

Estate Intel Research Lead Tilda Mwai said the regional real estate market is also being driven by a flight to quality and the need for flexibility. These are driving demand across a range of sectors.

“For example, despite a supply glut in Nairobi’s office market, Grade A offices have continued to outperform other classes with some office parks such as the Garden City office park recording occupancy rates of up to 90 per cent. The same can be said for Kampala and Dar es Salaam. With an influx of oil and gas occupiers expected in these markets, we expect demand for Grade A offices will only intensify,” she said.

These trends are also trickling down to the logistics sector, with demand for purpose-built warehousing increasing over the past five years, leading to the build-up of global investors and developers such as GRIT and agility setting their sights on the region.

“We expect this dynamic to continue to play out in the market,” said Ms Mwai.