Demand for student accommodation boosts real estate market

Sunrise Hostels near Dedan Kimathi University of Technology in Nyeri. [Mose Sammy, Standard]

Rising demand for student accommodation and growing retail business is expected to dictate Kenya’s property performance in the coming years.

That’s according to property consultancy Knight Frank, which cited a booming young population and the resumption of footfall in malls and malls that had been grounded by the Covid-19 pandemic.

In The Africa Report 2022/23, Knight Frank noted that with the Covid-19 pandemic leading many transactions to grow online in the e-commerce sector, traditional retail is expected to grow, hence more space for shopping malls.

While large retailers such as Naivas and Quickmart have expanded throughout the pandemic, Knight Frank is also seeing demand for space for smaller malls.

The report, which covers 22 countries in Africa including Kenya, notes that Covid has helped accelerate the adoption of e-commerce in the country.

He adds that an increase in online shopping and retailers focusing on the development of their platforms, especially in the area of ​​food and beverages, has been observed.

According to the report, traditional retail, particularly convenience-focused schemes, has also seen a strong rebound over the past six to nine months as restrictions eased and people eagerly resumed a normal life.

“We also expect to see more coworking operators take advantage of low mall rental rates and establish bases in malls,” the report said.

According to the report, supermarkets have become star players. “Increasing sales and store expansion activity from domestic and international players means that supermarkets will remain a robust asset class in the short to medium term,” he said.

Convenience store boom

Knight Frank estimates that although Carrefour is the most dominant name in the retail sector, local retailers Quickmart and Naivas are the largest supermarket chains in Kenya by number of stores, having increased their branches by 30% in the past. over the past two years, which is equivalent to an expansion of 100,000 square meters.

The report cites the country’s young demographics as sustaining growth in the affordable housing and co-living segments of the residential market, noting that a young population, combined with a strong middle class, also helps the office and retail sectors of detail to straighten out.

This has allowed Nairobi to remain the strategic capital of East Africa and high on the list of international investors as a preferred entry point into Africa.

The report mentions the growing number of undergraduate students, a young population and an insufficient supply of formal student accommodation have led to the increased development of purpose-built student accommodation (PBSA) as well as co-housing schemes.

This is, according to the report, an asset class to watch. “In Kenya, we have seen an increase in PBSA due to the youthfulness of the population, which has led to a growth in the requirement for quality student accommodation close to an educational institution,” said said Mark Dunford, managing director of Knight Frank Kenya.

Despite Covid-19 restrictions, the report notes, investment in the affordable residential sector continues to improve. This is underpinned by the government’s commitment to deliver 500,000 homes to fill the much publicized shortfall of two million homes.

“In contrast, the high-end residential market continues to soften, with transaction volumes, sale prices and rental rates continuing to decline as buyers and renters become increasingly cost-conscious in the wake of the rising cost of living,” the report read.

Regarding the industrial sector, the report indicates that it is very active and remains full of opportunities as one of the asset classes that has benefited the most from the pandemic on a global scale.

This, he says, has been driven primarily by increasing demands for e-commerce, local storage and data centers, as well as domestic markets looking to reduce their dependence on locally made products. international scale. “We are optimistic for the sector which remains the least mature in the region,” the report said.

The office sector has slowed during the pandemic due to some businesses closing or downsizing and others choosing to adopt a work-from-home model.

Occupancy rate

Knight Frank says he has started to see the oversupply of office space developed in the run-up to the Covid 19 pandemic being absorbed by the market.

“We have seen some growth in rents over the past quarter and believe we will see prime rents begin to climb again thanks to improving occupancy rates and renewed interest from global tenants looking to set up or expand their operations in Nairobi,” explains the consultant.

Demand for these spaces is centered on best-in-class spaces, with investors and occupiers focusing on programs that meet their environmental, social and governance (ESG) criteria – a theme we believe will continue to grow. escalate, raising questions about the future of older, more secondary and non-ESG compliant stocks.

“Despite this, the number of green-certified developments remains low,” the report adds.

The report also observes that attracting significant volumes of institutional capital to the continent continues to prove difficult and that recent global macroeconomic events appear to further hamper matters.

“Indeed, total cross-border investment in African commercial property was 31.8 billion shillings ($274 million) in 2021, down 49% from 2020 and 54% from 2019 figures,” the report read.

Although the traditional office sector globally is expected to account for just over half of all cross-border investment transactions, the report notes that in Africa we expect asset turnover by investors, particularly the private equity, to the industrial, residential, life science and data center sectors.

“Investment managers and institutional investors are expected to lead demand for these alternative sectors, while high net worth investors will also show strong interest, particularly in more stable markets, such as South Africa and Kenya,” he concludes.