Asking rents for high-end residential properties in Nairobi rose by 1.1% in the year to September, according to the Knight Frank Prime Global Rental Index for the third quarter 2015.
The stable annual performance was largely due to higher growth in the latter part of 2014, which anchored Nairobi at the seventh position in the 17-city index for the second consecutive quarter. South Africa’s Cape Town, which is the only other African city in the index, was sixth with a 1.6% growth in the period.
However, Nairobi’s asking rents remained unchanged in the third quarter and during the preceding six months to September, signalling a flat growth for the 2015 calendar year.
Ben Woodhams, Knight Frank Kenya Managing Director, said: “The high-end rental market was relatively slow in the period due to a steady growth in supply that increased options for tenants. Nonetheless, we did not see a price movement downwards.”
With the widening options, luxury homes in gated compounds remained attractive for tenants compared to duplexes or apartments.
Looking ahead, no significant shifts are anticipated in asking rents for luxury residential in the city, as most tenancies will be renewed at the same levels as 2015. Even so, improvements will be seen in faster transactions as the market absorbs the current stock of rental units.
In addition, Nairobi’s top-end residential market is expected to be among beneficiaries of expansion drives by US companies eyeing the emerging markets over the next few years as they ride on relatively stronger economic prospects back home and the dollar’s performance. The prime residential rental market significantly relies on expatriates posted on short- to longer-term assignments.
“The strong US dollar, which is likely to be bolstered further as a result of the recent rate hike by the Federal Reserve, is driving US corporate relocations, particularly to emerging markets in Latin America and Africa. According to Mckinsey, by 2025 45% of the Fortune Global 500 companies will be based in emerging markets, compared to 5% at the turn of the century,” Kate Everett-Allen, Knight Frank Partner – Residential Research, notes in the report.
Globally, prime residential rents generally drifted lower, dragging the Prime Global Rental Index down by 0.9% to post its weakest annual performance in five years.
As a region, Africa (represented in the index by Cape Town and Nairobi) recorded the strongest growth in prime rents in the period, rising by 1.3%, and was the only world region to record positive growth.
China’s Guangzhou recorded the fastest growth in the period with a 6.2% increase in the year to September, 5.1% in the six months to September, and 3.5% between June and September.
Traditionally, one high-rise building would have a mix of retail space on the lower floors, office space on the upper floors, and at times, some penthouses on the top-most floors.
However, what we are seeing today are properly integrated developments – delivering commercial, residential and retail space in far bigger magnitudes. Striking examples that embody this trend include Garden City, Two Rivers and The Hub.
It is a new concept that developers have introduced in Nairobi, a market that is now learning to embrace the opportunities that come with having offices in a large-format retail environment. These mixed-use formats have been designed as city hubs where people can live, work, shop and play in the same location.
Ben Woodhams, Knight Frank Kenya Managing Director, said: “It’s a very exciting trend. The model presents opportunities and alternatives for companies in a new kind of office occupation. Nairobi hasn’t had this before and we are showing the market the benefits of having workplaces in a predominantly retail environment.”
A fully integrated mixed-use development combines the facets of parking adequacy, convenience and the live-work-play concept, making them a reality.
This is the model that Garden City has pioneered on Thika Road. The development incorporates a large shopping mall, top-end office premises totalling 280,000 square feet in four blocks of five floors each, 500 new homes and a three-acre central park for recreation. The entire development sits on 32 acres.
Two Rivers – which sits on 102 acres – integrates a huge retail mall (Mall of Kenya), two office towers with a total of 215,000 square feet, residential apartments, hotels and recreational space. The development is located on Limuru Road.
The Hub is another mixed-use complex, set on 20 acres in the green suburb of Karen. Its construction is two-phased, integrating retail, offices, residential, hotel and a conference centre.
Evidently, these new models of mixed-use commercial developments are not in conventional locations. And while the bulk of office space in the city will remain in the traditional nodes, there are some key benefits for investors and occupiers in this new model.
Perhaps the most conspicuous benefit in this new setting is abundant parking space. In a fully integrated mixed-use development, this is a utility that favours all – be it office occupiers, shoppers or residents. Motorists will not have to worry over parking.
Companies occupying space in such developments can negotiate to annex parking space in the retail section during weekdays when the number of shoppers is relatively low compared to weekends, while retailers get the favour returned when shoppers are allowed to park in the commercial section on weekends.
Kevin Wathome, a commercial agent at Knight Frank Kenya, said: “The standard parking ratio for commercial developments is usually two bays per 1,000 square feet. The option of using the retail side in a mixed-use development virtually guarantees unlimited parking space.”
At Two Rivers, for instance, basement parking has 1,500 bays while on-grade parking will have an additional 360 bays.
At Garden City, the mall alone will have 1,400 parking spaces. The business park will have about 840 spaces. Each of the apartments will have at least two parking bays.
The Hub will have slightly over 1,000 parking bays on the retail side which also hosts office space.
When all you need is within easy reach, it means more efficiency. For companies, this will translate into higher productivity at work while for employees who reside within the developments, it means more time with families and recreation, and less time in traffic commuting to and from work. Convenience therefore works for both the employer and employee in the context of integrated developments.
Indeed, companies are increasingly concerned over the welfare of employees, hence more firms would find it more ideal when a vast majority of their staff can live closer to the workplace.
Staff well-being is one reason why companies are moving into more cosy offices, so as to boost creativity, productivity and employee retention.
According to the Knight Frank ‘Global Cities – The 2016 Report’: “Many occupiers increasingly view offices as an effective means of controlling the bigger and more damaging business cost of staff attrition.”
In addition, all these developments have been positioned along major roads that are well-serviced with public transport, further improving accessibility. Two Rivers is serviced by Limuru Road and Northern By-pass, Garden City has Thika Road and the new Outering Road, while The Hub has Ngong Road and Southern By-pass.
James Ngugi, a commercial agent at Knight Frank Kenya, said: “Accessibility to Two Rivers, where fit-out has begun, for instance, resonates well with key executives who live in the surrounding areas such as Runda, Muthaiga and Westlands. It’s also within minutes from the CBD, while the Northern By-pass boosts access to Kiambu, Ruiru, Embakasi and beyond.”
This concept is fast becoming the norm in major cities worldwide, bringing homes, offices, shops and recreational spaces closer to one another. People who work and shop within these developments get to enjoy this lifestyle while living in trendy parts of the city. Hitherto, the norm has been to commute across cities to and from work.
An earlier report by Knight Frank, ‘Global Cities – The 2015 Report’, notes that firms are increasingly moving offices to edge-of-CBD locations, a trend that’s creating new office hubs; homes and shops are following suit.
Asking prices for high-end residential properties in Nairobi’s affluent neighbourhoods grew at a faster rate in the year to September, pointing to renewed market resilience.
The Knight Frank Prime Global Cities Index for the third quarter showed Nairobi prices increased by 3.5% in the 12 months to September. The quarterly index tracks luxury house prices in local currencies across 34 cities worldwide.
The Kenyan capital’s stronger sale price growth has – for the first time this year – outperformed the index’s global average of 1.9% over the same period. This is also higher than a comparable period in the year to September 2014 when a growth of 0.7% was recorded.
On a six-month basis, asking prices went up 1.1%, while a 0.2% increase was recorded for the three months to September.
Nairobi stood at position 14 in the ranking, marking the third consecutive move up the ladder, from 26th in the first quarter and 20th in the second quarter.
Ben Woodhams, Managing Director Knight Frank Kenya, said: “While it’s taking a little longer to close deals, we are beginning to sense a slight increase in interest in the prime properties on offer.”
Typically, a prime residential property in the country is usually located within an affluent area, is of exemplary quality and finishing, and priced from Sh80 million.
The index showed that 73% of the global cities in the survey recorded positive price growth in the year to September, compared to 91% two years ago.
Canada’s Vancouver topped the index for the second consecutive quarter, with a 20.4% price growth in the period. Australia’s Sydney (13.7%) and China’s Shanghai (10.7%) were the only other cities that recorded double-digit annual price growth.
Kate Everett-Allen, Partner for Residential Research at Knight Frank, said: “Looking beyond the top rankings, the overall performance of the index is less robust.”
However, Everett-Allen said, prime assets are expected to remain on the radar of investors and high-net-worth-individuals globally as the US Federal Reserve’s quantitative easing programme unwinds, ushering in possibilities of a rate hike.
Kenya is among countries with global cities that are well-positioned to gain from the growing popularity of short-let accommodation in serviced apartments, according to the Knight Frank Global Cities Report 2016.
However, the country must formalise this developing class of real estate, instill professionalism and tap into branding this property type in order to reap the full rewards.
‘Global Cities: The 2016 Report’, published by Knight Frank, states that as the sector grows globally, quality assurance for short-term accommodation will be a challenge, particularly given that future economic growth will be dominated by the emerging markets.
The report points to complexities around serviced apartments operations and private short-term lets, underlining the growing importance of branding and uniformity in service quality and booking systems for this market niche.
“For example, the quality of serviced apartments in Kenya matches that of a hotel, but it’s been done relatively informally to date. The next level will mean more professionalism and a branded type of offer,” Knight Frank says.
The two compelling factors driving global demand for short-term rental accommodation are the fact that companies have become more cost-conscious after the financial crisis and are curbing the expense and altering the nature of overseas assignments. Secondly, a generation of younger employees who are used to more flexible business and leisure travel is encouraging companies to deploy people around the world for shorter periods.
According to the ‘Global Cities: The 2016 Report’, a combination of supply shortage in established markets and a fluid regulatory landscape globally means those cities that embrace the flexibility of short-term rental models like serviced apartments stand to reap substantial economic benefits.
“Those cities that can find a way through such complexities and embrace this new form of real estate stand to benefit from a sector that is set for strong growth,” Knight Frank advises.
For investors and landlords, there are clear long-term rewards in the world of short-term rental accommodation and flexible living.
And in an environment of changing work habits, one way multinational companies have become more conscious about costs is to increase their reliance on short-term assignments and use serviced apartments rather than hotels during the initial stages of a relocation, new operations or skill transfer programmes.
Indeed, assignment consultant ECA International has forecast that short-term assignments will grow to over a fifth of all international relocations in the three years to 2017.
The company said that almost 90 per cent of buyers now using the internet when looking for a home.
It will be using online platform to drive sales under the new venture even as it eyes the African market.
The firm said it has a global sales force of 82,000 agents, in 3,100 offices and is targeting business in Kenya, Ghana, and then Nigeria.
“The vibrancy and spread of the Kenyan real estate market represents a real opportunity for our franchising model, which offers transparency, reliability and trust for buyers and sellers in the middle and top end of the market,” Coldwell Banker Kenya Managing Director Danielle Callaway said.
Coldwell Banker, owned by Realogy Holdings Corporation, will be partnering with existing Kenyan real estate agencies to offer them a brand, technological capability, and marketing expertise.
Through the well-established Coldwell Banker networks, sellers will also gain exposure to worldwide home buyers who are interested in relocation, as well as domestic clients.
Coldwell Banker franchise joins other American businesses which have entered East Africa including General Electric, Facebook, Google, American Express, Wal-mart, Salesforce and many others.