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Nairobi’s Property sector sees a surge in serviced apartments

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●      Westlands has the lion’s share of the supply with at approximately 37% supply while Kilimani comes in second with a supply of 28%.

●      The sector’s growth is pegged largely on business based tenants and improving infrastructure such as the development of sewer systems, expansion and upgrading of key roads in Nairobi.

●      Future outlook holds an expected growth of branded apartments and sectional ownership of serviced residences.

Serviced apartments in Nairobi registered an increase in performance in 2018, attributed to a growing preference for extended stay options. This trend follows the growth of global corporates looking to establish regional hubs in Nairobi and preferably host their employees in serviced apartments in the city.

According to the ‘Investing in Nairobi’ report by VAAL Real Estate, there has been a 49% increase in serviced apartment supply from approximately 2,320 serviced apartments units in 2013 to approximately 4,582 units in 2018. From a unit delivery perspective, the most popular extended stay unit is the 2-bedroom unit with a 42% space share in the market. The least popular option is the 3-bedroom option that holds a 10% space share count.

Speaking during the launch of the report, Majeed Saad, Chief Executive Officer, VAAL Real Estate noted that currently, the largest number of serviced apartment users are largely business-based, mostly attached to a corporate entity or are independent residents but are still attached on work commitments.

“Nairobi continues to attract investment from multinational companies and this means continued growth and diversification of the serviced apartments sector. With the entry of large brands in the city, we anticipate further investment in premium branded serviced apartments in the region and sectional ownership of serviced residences.”

According to the report, in the Nairobi Metropolitan Area, Westlands has the lion’s share of the supply with at approximately 37% supply while Kilimani comes in second with a supply of 28%. Areas  such as the Nairobi CBD and Upperhill lag behind in the serviced apartments category, with approximately 9% and 6% respectively despite having access to a corporate clientele base from the office users in the vicinity.

“The real estate sector remains positive as it continues to attract both local and international retailers driven by a conducive macro-economic environment, with an average GDP growth of above 5.0 per cent over the last five years,” said Prit Shah, Sales Manager at VAAL Real Estate. “So far, we have invested in over 503 units in upscale nodes across Nairobi.”

The report also highlighted that the retail market average occupancy is 84% across various centres as registered by second half of 2018 compared to 78% registered by the same period in 2017. This growth is attributed to increased confidence from both the retailers and the consumers. Westlands Area takes the largest market share of quality office space supply at 30% followed by Upper Hill and Kilimani at 28% and 16% respectively.

This is attributed to the review of planning regulations permitting higher densities and commercial user in areas that were initially designated for residential use. This supply is projected to continue growing in Westlands with the expected delivery of approximately 45,000m² by ATC Building by mid-2022. Apartment average yields in Nairobi range from 4% to 6%.

The report also identifies  Kileleshwa and Kilimani as areas that offer the highest returns mainly attributed to a more vibrant rental market and planning regulations that permits higher densities.

Nairobi’s real estate sector in 2018 recorded continued investment across all sub-sectors, as a result of political stability following the conclusion of the electioneering period in the first quarter of 2018 and the continued positioning of the capital as a regional hub. Increased entry of multinationals and expansion of local brands has created demand for residential units, retail space, commercial offices and hotels.

The sector’s growth is also pegged on improving infrastructure such as the development of sewer systems, dualling of Ngong Road (Phase 2), upgrading of Industrial Area roads phase 1 and the expansion of Waiyaki Way- Redhill Link Road.

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