Nairobi: Understanding the opportunity to invest in student accommodation

This article was first published by Cytonn, and has been slightly shortened. View the original here.

With the current available stock at 301,060, Kenya’s student housing gap has attracted private sector participation to increase supply.

Some of the factors that have driven demand for student housing in Kenya include:

  • Rapidly growing student population: According to the Kenya National Bureau of Statistics (KNBS) 2021 Economic Survey, the student population in universities and vocational centres stood at 997,904 in FY2020/21 from 664,000 in FY2014/15. This represented a five-year compound annual growth rate (CAGR) of 8.5%, further expanding the student housing deficit by approximately 60,000 units. The numbers are set to increase as the university/college age demographic continues to grow. According to the 2019 population and housing census data, the number of individuals between 18-24 years, who mostly represents university and vocational entry students, was 6.4 million, representing 13.4% of the total Kenyan population of 47.6 million.
  • Increase in tertiary institutions: According to the KNBS, the overall number of technical and vocational education and training (TVET) institutions increased by 7.5% to 2,301 in 2020, from 2,140 in 2019. This increase, especially in satellite branches, is supported by government policy to increase the number of higher learning institutions to accommodate the growing student population.
  • Public policy: Government measures such as scrapping visa requirements for other African countries is a boost for enrolment of international students to local institutions. In addition, the Kenya National Qualifications Authority (KNQA) has become more aggressive in fast-tracking recognition and equating of qualifications obtained from different countries, and the verification of certificates to ensure that they are genuine. To make Kenya more attractive, KNQA has planned to include upgrading accommodation facilities, setting out clearly defined academic calendars, and establishing international student directorates to assist learners. These will result in greater demand for quality student housing.

A few private sector players have taken interest in the concept of student housing, with institutional investors focusing their investment grade portfolio within Nairobi County. The key market players are shown below.

Incoming supply of student housing over the past two years has been limited by the Covid-19 pandemic which presumably slowed down the investment volumes and brought about the trend of online-learning which further limited demand for student accommodation. However, as vaccination programmes accelerate to manage spread of the virus, the market has witnessed growing investor confidence and initiative in unlocking growth opportunities. One of the major moves that have been witnessed in the Kenyan market is Acorn Holdings’ listing their Development REIT (D-REIT) and Income REIT (I-REIT) at the Nairobi Stock Exchange in February 2021.

Despite the factors driving demand, supply of student housing continues to lag behind owing to the notion that provision of student accommodation is the role of the institutions of higher learning. The shortage of purpose-built student accommodation is further attributable to:

  • Insufficient access to funding: Unlike in the developed markets where investors can easily secure debt and equity financing, obtaining financing for local developments has been difficult due to reluctance of lending institutions to finance such private developers and therefore apply strict underwriting standards. Additionally, the local capital markets, which can be a source of long-term funding remains relatively undeveloped. For instance, in Kenya, the capital markets contribute a mere 1% of real estate funding while banks contribute 99%, compared to 60% and 40% respectively in developed countries.
  • Ineffectiveness of public-private partnerships (PPPs): PPPs in Kenya face challenges such as: i) difficulties in managing the multi-stakeholder nature of most of the PPP projects, ii) lack of appropriate legal frameworks in Kenya to enable transfer of public land into special purpose vehicles to be able to attract private capital and bank debt, and, iii) the extended timeframe of PPPs while private developers prefer to exit projects within three to five years. The PPP hostel projects have a design, build, own, operate and transfer model, where the developers will recoup their return after an approximate 20-year period and this is unattractive to investors who prefer to exit early.
  • High land costs: Land in urban areas in Kenya has continued to soar, driven by demand for development-class land which has also led to its shortage, especially in Nairobi, where the price per acre averages Kshs 134.8 million as at 2021, according to Cytonn Research.
  • Inadequate expertise: Purpose-built student housing accommodation requires high development and management expertise, which the majority of developers lack capacity for hence making them shy away from investment in the sector.

Nairobi Metropolitan Area (NMA) student housing market performance

We conducted research and analysed data of 10 areas in the NMA namely: Parklands, Madaraka, Ruiru, Kahawa Sukari, Thome, Juja, Rongai, Athi River, Karen, and Thika. The student housing market in Kenya comprises of studio units and shared units of up to eight beds, with the most stock of shared spaces being that of two beds in a unit. These facilities have continued to offer amenities such as tuck shops, back-up generators, CCTV and 24/7 security teams, secure biometric access, common rooms with DSTV, gyms, and game rooms, laundry machines, separate study rooms, and some even offer shuttle services. The rents for purpose-built student accommodation (PBSA) range from Kshs 10,000 with the highest in the market currently being Kshs 34,000 per month.

The student housing market recorded a slight improvement in 2022, with the average rental yield coming in at 7%, a 0.1% marginal improvement from 6.9% recorded in 2020. The average rent per square metre (SQM) increased by 18.3% to Kshs 505 in 2022, from Kshs 427 in 2020. However, the average occupancy rate registered a 1.7% points decline to 79.6% in 2022, from 81.4% in 2020. The table below gives a summary of the comparison in market performance between 2020 and 2022.

The key take outs include:

  • The relatively marginal improvement in 2022 was attributed to the Covid-19 pandemic that saw students shift to online learning hence reducing demand for student accommodation. However, as the economy reopened, landlords increased their rental rates in a bid to compensate for losses recorded in 2020 hence the relatively high rent per SQM at Kshs 505 in 2022. In comparison to other real estate themes, rent per SQM in student housing is in line with that of the residential sector which came in at Kshs 508 per SQM in 2021. However, it is relatively lower than that of the commercial office and retail sectors.
  • The rooms occupied by one person registered the highest rental yield at 11.3% in 2020. However, this represented a 0.4% points decline from 11.7% recorded in 2020.
  • Two-sharing rooms recorded the highest occupancy rate at 81.6% in 2022. On average, the private hostels charge Kshs 10,467 per month compared to university-let hostels, which charge a maximum of Kshs 3,000 per month.

We also analysed the data depending on the market segments, i.e. upper-mid-end markets, which tend to host private universities, and the low-mid-end and satellite towns which largely host mid-tier colleges and public universities. The upper-mid-end segment remained the best performing as it generally attracts relatively higher rental rates that average at Kshs 622 per SQM in comparison to the low-mid-end markets with Kshs 456 per SQM. In terms of rental yield, the upper-mid-end segment registered a 0.5% points increase in rental yield to 10.0% in 2022 from 9.5% in 2020. On the other hand, rental yield in the lower-mid-end segment remained unchanged at 7.5%, similar to 2020.

Rental rates: Thome and Karen Estates attracted the highest rent per SQM at Kshs 657 and Kshs 646, respectively. These areas host top tier private universities such as Catholic University of Eastern Africa and United States International University thus attracting students largely from the middle class and high-income families. Generally, the average monthly rental rates fluctuate based on location, the type of institutions targeted, which tend to warrant differences in terms of the quality of student housing and amenities expected by the students. Additionally, hostels within Nairobi County tend to charge higher than satellites owing to the relatively high land costs, which are passed onto the tenants.

Amenities: Rental properties in the off-campus market offer a number of amenities, many of which are absent in on-campus housing. Three amenities that are available off-campus and almost non-existent on campus include: hot showers, wireless internet access and DSTV.

Occupancy rates: The low mid-end segment registered a higher average occupancy rate averaging 81.5% compared to upper mid-end areas with 79.1%. This is because the former tend to attract more student populations owing to their affordability with some opting to commute.

In comparison to other asset classes within the real estate sector, student housing posted a relatively high rental yield averaging 7% and surpassing serviced apartments and residential sectors which recorded 5.5% and 4.8% as at 2021, respectively, as shown below.


For purpose-built student accommodation to be more attractive to students and enable investors to benefit from high occupancy rates and consistent rental income, we recommend that investors should:

  • Develop accommodation facilities that are in line with international standards such as: i) high-quality finishes and amenities, ii) thoughtful and market-specific design, and iii) are located in close proximity to universities, ideally less than five minutes walking distance, and,
  • Conduct thorough research to identify the niche markets.

Investment opportunities in the Nairobi Metropolitan Area lie in areas such as Karen, Thome and Madaraka with relatively high rental yields of 11.1%, 10.5% and 9.2%, attributed to the areas hosting private universities in Kenya popular with international students.

It is clear that there is demand for student accommodation and purpose-built student accommodation is becoming more important. As such, we expect to witness more developments to cater for the rising number of students in institutions of higher learning. However, the trend towards online-learning due to the pandemic poses a challenge to the incoming supply of purpose-built student accommodation as this may reduce occupancy rates in the developments.