A budding services sector makes Kenya powerhouse

Commercial real estate is thriving in Kenya, becoming the largest market in East Africa with a $118.1 billion gross domestic product.

The country’s multi-layered economy is anticipated to hit $151 billion by 2028, and political stability has helped. A well-structured services sector which is strongly supported by key financial institutions as well as a healthy agricultural sector bode well for the country.

Telcos, business process outsourcing centres, other information technology service providers and corporations are all looking to rent offices and industrial and logistics properties.

This is encouraging developers to build in well-located cities supported by financial institutions. For example, Grit Real Estate, dually listed on the Mauritian and London stock exchanges, has set up its subsidiary, Bora Africa, to invest in warehousing, prime logistics, light industrial, manufacturing and other projects in Kenya.

Asset classes like industrial, dousing, data centres and corporate and diplomatic housing are gaining momentum. This year, Absa signed a Sh6.7 billion financing arrangement with Acorn D-Reit Student Accommodation to support the development of up to 10 purpose-built student accommodation (PBSA) projects in Nairobi and its environs. The second asset class is affordable housing, which has been driven by the government’s drive to reduce the housing deficit by 250,000 units per year.

The investment case for both specialisations of residential property is strong and will persist. Kenya’s population is young with a median age of 20. People need to live in decent homes. There are also youth coming from other African countries to study in Kenyan universities and software coding schools.

There is a growing demand for light industrial warehousing space, spurred by e-commerce growth. We are also seeing more discussions around data centres and satellite hospitals. The commercial real estate industry has also begun to attract a wider variety of owners. Diverse investors are acquiring or developing large-scale real estate projects. 

Develop affordable housing

An increase in the number of pension funds wanting to develop affordable housing units, saving and credit cooperative societies (saccos) and international players are coming in to acquire residential units. Private developers, with the help of private equity firms, have increasingly established retail malls.

Real estate investment trusts (Reits) are being created with some anticipated to list on the Nairobi Securities Exchange soon. Developers are coming to the market, attracting interest from multinationals. 

Financial institutions are encouraging ordinary East Africans to invest in listed stocks for consistent income returns. Listed funds will draw private equity to the region as private equity firms seek closed capital structures and listed property counters are seen as the exit vehicle after achieving their goals.

Undoubtedly, the region is positioning itself as the next frontier for real estate investment in Africa. Supported by countries with young populations and exciting GDP growth, its potential is promising.

Ms Zaharaa is the head of commercial property finance, East Africa, at Absa Bank Kenya. [email protected].