Retail and office space – growth areas for Kenya's property industry
How we made it in Africa talks to James Hoddell, CEO of Mentor Management, about the opportunities and challenges in Kenya’s property market.
Mentor Management is one of the largest property development and construction management companies in East Africa. Majority owned by private equity firm Actis, Mentor is overseeing the development of multi-million dollar projects that are set to transform Kenya’s capital Nairobi. How we made it in Africa’s Dinfin Mulupi spoke to James Hoddell, chief executive of Mentor Management, about the opportunities and challenges in Kenya’s property market. What property development projects are you currently undertaking?
At the moment our biggest project is Garden City, which is going to be the biggest mall in East Africa with residential units, a public auditorium, a hotel and offices. We are also working on the extension of the Nairobi Business Park. These two are exciting projects we are doing on behalf of Actis. We have several other projects, mostly office buildings, a children’s hospital expansion and a luxury development at the coast.
How will these developments impact Nairobi as a business hub?
We are raising the bar and changing people’s perception in terms of location. What we are doing with Garden City will change the perception about Thika Road (the development will be located along the Nairobi-Thika road). Everyone knows there is a big road there, but they don’t go to Thika Road.
At the Nairobi Business Park we have got a waiting list of people that want to come in, which is why we are doing the expansion. It has changed people’s perception about working out of town. These projects are bringing a lot of foreign money into the country.
These developments are also attracting foreign retailers. Last year we signed the first unit for Massmart in Kenya that will employ several hundred people. We are currently touring South Africa and Dubai to meet retailers and encourage them to come here. Retail is a big growth area in Kenya.
How did the market perform last year and what are the expectations for 2013?
Last year was an excellent year. We had equilibrium in demand and supply, which means people are able to choose and also identify with quality. There was a little bit of a slowdown towards the end of the year with people holding off making investment decisions pre-election. The most interesting thing for us is that we are seeing a huge number of international companies moving into the country. This translates to more demand for buildings. It is essential that the next elections go okay. I don’t think it will slow down the economy or the local market if we have the same problems that we had five years ago (2007/2008 post-election violence). There will be a bit of hold back, but ultimately things will keep going. It will however put Kenya five years back in terms of the appetite from institutional and international investors to come in.
How competitive is the market?
There are very few competitors in this market, at least those who do the full development and project management. We are experiencing a real estate boom that is set to continue for years. People are realising that you can’t just build whatever you feel like and sell or rent it. Everyone in Kenya is an expert in real estate. What we are seeing now, as competition gets fierce and as more international people come in and Kenyans in the diaspora return home, people will not accept just any old building. People are looking for something better. That means you need to have skilled advice to be able to deliver. What we are able to do more than anyone else in this market is merge the best of 25 years of Kenyan development history with a lot of international experience.
What is driving the real estate boom?
First is the expanding population and economy. That is the underlying driving force. If there weren’t occupiers for these buildings, no one would be building them. For 20 years there was inadequate availability of property, nothing much happened, there was very little development and the economy had stalled. But now, we are seeing pent-up energy in re-starting the economy. We are seeing the growth in India and China, who have both become significant investors here, and the trickling in of international money, like the Actis fund. It is much more exciting to invest money here. This is a relatively cost effective market to operate in. It is a cheap country to build in; it has a developed construction industry with developed sets of consultants and a functioning real estate market, which a lot of African countries don’t have.
Describe some of the major challenges you face
Acquiring land for development is becoming increasingly difficult because of the very high price expectations that owners have. We are getting to a point where even with increasing rental prices and sales, land prices are increasing faster. It gets to a point where profitability is reduced such that it is not worth developing. This is a serious risk. The astonishing thing is that people whose land was worth a few shillings ten years ago will now hold out for the difference between $10 million or $8 million for their family plot. That extra $2 million will mean so much to them that they would rather not sell. People who were worth very little a few years ago are now multi-millionaires because of the land prices, and they want ever more such that we cannot do business with them because we also have to make profits.
What are your expansion plans?
We are studying a potential mixed use project in Uganda’s capital Kampala. That is a market we find interesting. We are also looking at Dar es Salaam (Tanzania’s commercial hub). With the county governments taking off in Kenya after the March elections we are looking at the opportunity of rolling out smaller, mixed use projects across the country. However, it takes a very different set of skills and people to do these jobs. We are in the process of expanding our network to be able to realise projects in all these places.