Kenya’s capital Nairobi will continue to experience “phenomenal” growth in the commercial real estate market as the entry of multinationals, growth of local enterprises and an expanded government push demand for office space.
This is according to Gikonyo Gitonga, CEO of leading Kenyan property firm Axis Real Estate. He notes that Nairobi’s improving infrastructure, international airport, robust financial sector, educated workforce, good quality of life and expanding middle class make it an attractive destination for multinationals expanding to East Africa.
“Although there are a few security issues it is relatively secure. With the discovery of oil we are going to see a lot of commercial real estate growth as oil companies and firms that provide auxiliary services to the oil and gas industry locate here. There is definitely going to be more demand for office space in Nairobi.”
Driving around the city, one is likely to see the construction of high-rise buildings almost everywhere. While individual private investors are heavily focused on residential developments, institutional investors are mostly concentrated in commercial offices, retail and industrial property.
One such investor is London-based private equity firm Actis which expanded its Nairobi Business Park development in 2012 and began work on Garden City, a mixed use development that will host the region’s largest retail centre and residential and office estate.
“The Kenyan property market is very vibrant. Capital appreciation is high in Kenya and there are good returns in terms of yields. That is why you are seeing a lot of international players coming in,” says Gitonga.
In recent years corporate firms have relocated from the CBD into suburbs such as Upper Hill, Kilimani and Westlands to evade the city’s infamous traffic jams.
For instance, emerging business district Upper Hill hosts the World Bank, Equity Bank Group head office, Coca-Cola East and Central Africa office headquarters, the World Health Organisation, British High Commission and Embassy of Japan.
“However, there are still people who will thrive in having their business in the CBD like banks and lawyers.”
Gitonga adds that the government and universities are also taking up more office space in the CBD because of convenience.
“If you look around Nairobi, some of the buildings have been bought by universities and converted into teaching facilities because a lot of Kenyans are doing post-graduates degrees. Which is the most convenient place to have a class at 5:30 in the evening? It is the CBD. Any building that is put up for sale in the CBD will probably be bought by a university.”
When Gikonyo co-founded Axis Real Estate 15 years ago it targeted the commercial property market but it has since expanded into residential, industrial, mixed-use development and retail property.
Axis offers professional services in all spheres of real estate including estate agency, fixed assets management, project and construction management, research and consultancy and valuation advisory services.
Kenyans love real estate
Gitonga attributes the rapid growth of Kenya’s property market to “passion for real estate” among Kenyans. The country has only 20,000 mortgages but that has not stopped locals from buying and investing in real estate. Gitonga explains that most buyers and local investors use alternative financial instruments like savings and credit cooperatives and investment groups.
“There seems to be a lot of money in the market. The investment opportunity for a lot of people is very limited. You either invest in the stock market, your business or real estate. Kenyans love real estate.”
However, limited access to professionals is a major challenge in the market.
“As much as they could be educated you have to continually motivate your staff and encourage them to grow in their profession and improve their academic credentials. By doing this we have managed to develop a good professional team who are very experienced and dedicated to their work.”
Since he co-founded Axis in 1998, the business has gone through ups and downs, but Gitonga says he has no regrets.
“The idea that it can only get better always motivates me during tough times. Of course, sometimes it gets worse, but you just take that in your stride and say it is just a season that will pass.”
Gitonga attributes the success of the firm to maintaining a good reputation and taking a long-term approach.
“Never do quick easy deals because it can turn out to be very costly,” he says. “How you treat your clients, customers, service providers and partners is very important. You have got to build trust by being efficient, upholding the highest level of integrity and by giving the best service to your clients. You have to realise that clients are people you work with and you are going to walk with on a long journey.”
Gitonga reckons there is going to be significant growth in East Africa’s property market and this makes the region favourable for investment.
The firm intends to develop partnerships with existing companies in these markets and work with them as affiliates and associates.
How to do business in East Africa
“There are a few common things about East Africa. There is a young population, a growing middle class and discovery of natural resources. These factors are going to spur economic growth. The question is when do you go in to tap into those opportunities?
“There is certainly going to be growth. But you have to understand how to do business in these countries. Doing business in Kenya and doing business in Uganda or Tanzania is a completely different ball game. There is no one single formula.”
He argues that now is the time for foreign investors and local companies to expand across East Africa “before the market becomes very mature”.
“You just have to weigh the risks and work smart to mitigate the risks.”