Fusion Capital, an investment management company has analyzed the real estate sector and recommended the areas to invest and areas to avoid. While in their report they affirm that the sector already has an oversupply of retail products, they are quick to add that there will be slow but sure growth at least until 2027.
- Low Income Housing Development – There continues to be a significant undersupply in low to middle income housing (2 – 10 million price range) as highlighted in the Government’s plan to build a million units of public rental housing over the next five years. This sector is undersupplied because margins remain razor thin. If the government creates the relevant incentives to widen this margin, Low income housing could be a boom market for 2018
- Existing Commercial Properties – Businesses looking to move office in 2017 firmly adopted the “wait and see” election approach mentioned above. A major upswing in office enquiries is therefore expected in first quarter 2018. Existing commercial property backed with impatient capital is currently very affordable and the right property purchase should be able to provide 12 percent+ yields over a 5+ year horizon
- Student Housing – Universities are keen to move to the European model of housing all first year students on campus. This guaranteed tenanting makes the development of student accommodation very attractive to yield investors.
- Warehousing and Factory Development – The increase in manufacturing will increase demand for warehouses. Long lease warehousing has been – and continues to be – one of the most attractive Real Estate investment opportunities in the continent.
- Secondary City Retail – Nairobians now have ample options for consumer spending, however the majority of the county towns remain undersupplied. The county retail must be customized to fit its demographics. Developers will need to avoid copy pasting the Nairobi model.
Real Estate Areas to avoid in 2018
- High income residential – There continues to be an oversupply of High income residential within Nairobi and its environs. The reality is that until the mortgage market opens up, there are very few people able to spend sh20M+ on a residential unit.
- Nairobi Large Scale Retail – The widely mentioned oversupply in malls within Nairobi has not curbed developer’s enthusiasm for the sector. Almost weekly we are approached with new proposals for Retail developments in and around the countries capital. In 2017, the vacancy rates increased, a trend expected to worsen in 2018 as we see more demand for convenience shopping and online retail offerings.
The report concludes that the best catalyst for continues growth of the sector is a re-energized banking sector which is averse to giving credit but could do it if the interest rates caps are rethought through.