London-based private equity firm Actis recently announced it will invest in a mixed use development in Kenya, called Garden City, which will host the largest retail mall in East Africa. The firm will also invest in a significant extension to the existing Nairobi Business Park development. How we made it in Africa’s Dinfin Mulupi chats with Koome Gikunda, investment principal at Actis, about the firm’s investments in Kenya.
Give us an update on the Garden City project?
Garden City is a pioneering mixed use development that will host the region’s largest retail centre, a residential estate and office estate. The site is 9km from [Nairobi’s] CBD off the newly completed Thika highway – an impressive infrastructure development and the busiest highway in East Africa. The plans for that project are advancing well. We break ground early next year. It is a very exciting project and there has been significant interest from local and international tenants. I think the South African retailers in particular are getting very serious about entering the Kenyan market and tapping into the country’s large consuming class.
Actis has just begun with the expansion of the Nairobi Business Park. Why the increased investment in office space in Nairobi?
The first phase of Nairobi Business Park is performing well. A number of the tenants from the first phase are desperate to grow within the park. It is on the back of this tangible demand that we decided to develop phase 2 – letting of which is underway. Phase 2 will consist of 15,300m2 of high quality lettable space, with world class services including restaurants, a fitness centre, convenience stores and so on. The contracted upgrading of Ngong Road into a dual carriageway and the on-going Southern Bypass construction are transforming the node, increasing its accessibility to the CBD and the airport, halving travel times.
We are attracted to Kenya as an office investment location in part due to the strong demand we see from companies increasingly using Nairobi as a regional hub that will serve East and Southern Africa.
What is your exit strategy for these investments?
We exit our commercial properties by selling them to local and/or international investors looking for exposure to yielding Grade A properties. There is growing interest from South African and Gulf investors and we expect this trend to continue.
In Kenya, the pension fund and insurance industry has an appetite for, but is underexposed to, property as an asset class. Some of the structural reasons inhibiting further pension fund investment in the sector may be resolved by the introduction of real estate investment trusts (REITs), an initiative Actis and other industry stakeholders are working on with the Capital Markets Authority (CMA). REITs will hopefully provide additional exit avenues for our businesses.
What impact will these developments have on Kenya’s economy in the long-run?
The property and construction sector is one of the larger contributors to GDP growth and employment and if done responsibly has a positive and lasting impact on the urban environment. At Actis we take this responsibility seriously and on both the Nairobi Business Park and Garden City we are incorporating various green initiatives into our developments and have them certified by Leadership in Energy and Environmental Design (LEED) – a first for the region.
Explain some of the challenges you are currently facing in the Kenyan market?
The recent volatility in inflation, interest rates and exchange rates make it difficult to plan for the long term. Specifically, mortgages rates of 24% make it very challenging for developers and prospective home buyers. I also think the government can make it easier to do business by streamlining approval processes and tackling corruption.
Most of your East African investments are in Kenya. What about the other countries?
We continue to look for quality investments in East Africa in the private equity, real estate and energy sectors. From a real estate perspective we are looking for retail and mixed-use opportunities in Kampala and Dar es Salaam, cities where Actis has previously made investments.
How would you describe East Africa as an investment destination?
If you look at it as a region, it is large, over 120 million persons, and an attractive investment destination. The combination of a fast growing middle class, the world’s highest rates of urbanisation, relatively diversified economies and very large natural resources discoveries in Tanzania, Kenya and Uganda make the fundamentals attractive. The East African Community is a very positive initiative, and quicker economic integration will help the region’s economies grow as fast as they can and should be. Now, investing in the region carries significant risks that we cannot wish away, but if these risks can be identified and managed, the returns can be attractive.