Kenya's wealthy cut investments in commercial property sector

Boniface Abudho (left) research analyst for Africa and Mark Dunford CEO of Knight Frank, Kenya, officially release a Kenya Wealth report, a perspective on Kenya wealth investment trends 2024 at Capital club, Nairobi. [Jonah Onyango, Standard] Kenya's super-rich are cutting back on the billions of shillings spent on commercial property. This is as the latest report by global real estate consultant Knight Frank shows a preference for smaller versions of commercial properties to mitigate risks associated with larger investments. The Wealth Report 2025 also shows that the high-net-worth individuals (HNWIs) are developing an affinity for land outside of the known urban centres as they move away from brick-and-mortar commercial assets. While funding cuts on aid programmes by the United States President Donald Trump have significantly reduced the flow of dollars to the commercial real estate space, these decisions by HNWIs are also being informed by trends in the economy, which have not been favourable for business. As a result, the super-rich are also cautious about acquiring residential property in 2025, a trend that extends from last year, when Kenya recorded a decelerated economic growth of 4.7 per cent compared to 5.7 per cent in 2023. While the slowdown on residential property acquisition can primarily be linked to economic challenges, for commercial real estate, the reason lies in the aftermath of the Covid-19 pandemic that has been exacerbated by funding cuts on aid assistance by the US, a key clientele for office spaces. "The subdued investment levels could be attributed to an oversupply of commercial real estate, particularly office space, which has led to higher vacancy rates and downward pressure on rental yields," says Knight Frank. "The rise of remote work and flexible office spaces has also impacted demand for traditional office buildings." The report also notes a shift from brick-and-mortar ownership of commercial real estate to alternative asset classes such as Reits (Real Estate Investment Trusts). There are also those HNWIs who are focusing on student accommodation and investment in land outside of the urban centres. "Despite these challenges, select segments such as prime retail locations and industrial properties catering to logistics and e-commerce continue to show resilience in the country," the report adds. According to the report, a majority of investors (39 per cent) plan to allocate less than Sh650 million ($5 million) towards commercial real estate. This is while 17 per cent expect to commit between Sh650 million ($5 million) and Sh1.3 billion ($10 million), with none considering investment above Sh65 billion ($500 million). "This distribution highlights a cautious investment approach driven by factors such as market maturity, economic uncertainty, and access to capital," the report says. Knight Frank explains that the predominance of Sh650 million ($5 million) investment suggests that most of the players are either local or regional with relatively limited capital. This is said to be in line with trends in emerging markets, where investors often prefer to start smaller, more manageable projects before committing to large-scale ventures. "While Kenya's commercial sector presents attractive opportunities, concerns regarding high business costs, evolving regulatory frameworks and infrastructure bottlenecks contribute to a more conservative approach," the report says. Knight Frank Chief Executive Mark Dunford said a majority of these wealthy individuals are looking at what is happening in certain asset classes, particularly in retail and office spaces, where returns have been contracting in the recent past. This is also informing their decision to move away from conventional real estate investment to alternative asset classes such as Reits. "While investors in the past have been willing to spend more on larger commercial assets, they are now looking at smaller assets, slightly less risky due to the uncertainty in the markets," he said. He noted the wide impact of The White House move, which has also been felt globally, but particularly in Nairobi, given the huge inflows into the country in aid through USAID. "It is not yet fully understood what the impact will be, but it certainly has an effect on investors," he said during the launch of the report on Tuesday. According to the report, which collected these views through family officers, private bankers, wealth advisors who manage the super-rich, 53 per cent of them said only one to 10 per cent of their clients look forward to getting a new home this year. "Fluctuations in Kenya's economic conditions, amplified by global uncertainties, have led many prospective buyers to delay major financial commitment," Knight Frank explains. It adds that concerns over income stability and future market conditions are prompting a 'wait and see' approach among investors, further dampening home purchase activity. Further, inflation in the sector has also informed this decision. Knight Frank lists rising land and construction costs and low mortgage penetration as the other reasons. This is even as the report notes that some segments of the markets have witnessed price correction, as reported earlier by the Kenya Bankers Association (KBA). KBA documented a 14.28 per cent year-on-year decline in some house prices in the third quarter of 2024. However, the cost of land prices in urban areas and construction costs are increasing to the disadvantage of prospective home owners. The fact that only 3.6 per cent of the population having access to mortgage also makes the decision to acquire a new home unfavourable for the HNWIs. "Stringent lending criteria and limited financing options from real estate firms restrict the pool of eligible borrowers, further contributing to subdued home purchase rates," the report says.

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