Office spaces or hostels: How to find your niche in the property market

Safaricom Investment Co-operative Housing Unit Manager, Daniella Nyakuraya. [Graham Kajilwa, Standard]

When you decide to invest in real estate, owing to how lucrative it is, the next question usually is: which piece of property are you putting your money in?

For big-time investors, such a decision is guided by feasibility studies but, for small-time individuals, it is not clear if putting up a residential property or converting your rental units to office space or Airbnb is the right decision.

Safaricom Investment Co-operative Housing Unit Manager, Daniella Nyakuraya, shares some insights on how one can know if the area they seek to invest in and the property is right for that market or not.

How important is a feasibility study in determining the type of property to venture into?

A feasibility study can be called a strategy document for a real estate project. It outlines the project’s strengths and opportunities and also cautions on project weaknesses, threats and risks.

It also equips the developer with information beyond the present that is necessary for the continuity of the project.

Safaricom Investment Co-operative conducts feasibility studies for prospective developers at a reasonable price through our value-added services branch.

Since feasibility studies can be an expensive undertaking, what is the alternative for a first-time investor? 

In this technological age, one can learn a lot through the internet. A simple desktop research on the area they want to invest in, current market and design trends and other factors would give one a fair appraisal on the most viable development.

A review of government, public documents, and zoning guidelines in libraries, online and other avenues will also arm an investor with valuable information.

Physical visits and reconnaissance in the areas of interest also go a long way in arming one with information.

What criteria can an investor use to determine if an area is ripe for an Airbnb business, student hostel, office space or residential building?

For all property types, it is important to assess the zoning plans and development guidelines. If an area has been designated as an industrial zone for example, it would be very difficult to then put up a residential building. These plans and guidelines also dictate the infrastructure and services you are likely to enjoy in different areas. Services such as roads, electricity, water, sewer, and internet are distributed along the same guidelines.

Population demographics are also an important determinant of what would work where. If an area has a younger demography, it is probably not advisable to put up three, four and five-bedroom houses as family-oriented people will be hard convinced to move there.

Another factor to consider is location. For instance, if you are considering putting up an Airbnb, you have to assess the ease of access to your property. Clients are more likely to book your unit if they can conveniently get in and out through either cabs, public transport or driving.

How does distance to or from the nearest town or central business district influence this decision?

One rule of thumb for residential buildings is that they should be one matatu ride away from town or central business district. This makes it an attractive product for prospective tenants as they are usually the working class and need to easily get to their places of work and other areas. Student hostels would also obviously work if they were located near learning institutions.

Proximity to amenities is also a great factor to assess especially for residential buildings. These amenities are things such as schools, hospitals, shopping malls, and religious centres. Families are always looking to live close to such facilities that give them a wholesome life.

What is happening around also dictates what you can do with your property. If the area has seen a growth of residential buildings, for example, putting up an office building would probably not be the best use of the space. Developing a school, café, or recreational area to serve the residents would be a better idea.

What market aspects determine whether a particular rental property type is viable as a rental property?

As with everything in a business at the end of the day, favourable rates of return on investment (ROI) and rental yield are crucial to consider. Rental yield is the base of the net profit an investor would earn annually from their property. It is calculated annually assuming that rents and service charges will not change during the tenancy contract. The ROI shows the money received by the investor after all the costs have been deducted. It is used to evaluate the profitability of an investment.

Future government development plans are also a crucial factor to assess. Is the State looking to construct roads, hospitals, rails, universities, or markets?  These plans can tell a developer the trajectory of growth an area might experience soon and help them decide the best use of their property.

What should an investor do when developing a property to avoid the hassle of converting, for example, an office to a residential development?

Carrying out feasibility studies goes a long way in ensuring one gets the most value from their land or space. It also equips an investor with a resilience plan, in the sense that it can easily tell what needs an area will evolve to have or demand. In terms of design, if an investor has a huge piece of property, masterplan designs and land use analysis are key exercises to help one easily adapt to changing markets.

This approach delivers a holistic strategy to the development, that can even be phased such that it keeps up with market needs. This approach also captures the provision of parking, water needs, waste collection and other utilities holistically.

For smaller properties, monolithic designs that avoid unique shapes, forms and spaces would be essential for adaptive use. This means the use of straight lines, regular shapes, standardised spaces and measurements of your rooms, stairs, lifts and other areas.