Nairobi City report. Kenya

Transcription

1 Nairobi City report 2017 JLL 2017 Kenya

2 Overview Kenya is one of Africa s fastest growing economies with positive growth projection for the next three years. The country s diverse economy and stable exchange rate compared to other African countries are appealing to investors. Nairobi continues to be an important gateway city to the high growth East Africa region. Notable recent events Imperial Health Sciences building purchased by Mara Delta Rosslyn Riviera Mall opened (Q1 2017) Two Rivers Mall opened (Q1 2017) Market Overview With the surge in land values, developers are building with a smaller footprint and opting to increase the number of floors, giving rise to an increasing number of skyscrapers being built in the city. Overall the real estate market remains buoyant with cranes continuing to go up as the city s economy maintains its positive growth trend. Investment Markets Nairobi s investment market is still largely capitalised by domestic institutions and private investors however international developers and investors are gradually gaining a greater share in the market. The investment market in Kenya is peculiar with the match between asset pricing, relative value and risk premium seemingly distorted. Occupational Markets The development boom is, however, beginning to put downward pressure on rentals and average rates in the office and hotel market while new retail developments enjoy higher rental rates. With demand trending towards better quality buildings, vacancies in new builds, primarily in office developments, are expected to be absorbed in the short to medium term. Outlook Regulations recently passed on the capping of lending rates at 4% above the central bank rate may have a structural impact on domestic capital markets impacting credit growth as well as influencing sentiments in the Kenyan market. Investor confidence and market activity may also be hampered in light of the upcoming general elections in August. 2

3 In numbers Population GDP Growth Wealth 47.3 million 5.9% pa US$ 1,169 Office 620,000m 2 stock US$ 164m 2 /annum rents 55 Hotels Hotel US$ 141 average room Retail 362,000m 2 shopping malls US$ 370m 2 /annum rents Investment % prime office yield 3

4 Offices Office stock Vacancy rate Rent 620,000m2 5% US$ 164m2 /annum Overview Decentralised nodes are gaining traction as demand moves out of the heavily congested and dilapidated CBD to better quality accommodation in emerging business nodes such as Westlands, Upperhill and Gigiri. Multinational companies such as Coca Cola, Standard Chartered Bank, GE and World Bank have all made their corporate address in these prime nodes while older Grade B office space in the CBD remains largely occupied by smaller local corporates. Demand Take up of office space is generally by small to medium businesses with larger occupiers adopting a cautious approach to relocations. Consolidations of dispersed offices is gaining momentum in the market along with the demand for fully serviced office suited such as Regus and ESBC. Supply 191,000m² of stock was completed in 2016 alone, mainly concentrated in Upperhill and Kilimani. Insurance companies are at the helm of skyscraper construction in the city with the British American insurance company, Britam currently developing what will become the tallest office building once complete. Rental outlook With concerns of an oversupplied market at a time in which business performance for key tenants has slowed down, speculative developments entering the market without the existence of a pre-let agreement run the risk of witnessing high vacancy rates after completion. Performance / Cost The increased office stock in the market is beginning to put downward pressure on rentals with Westland and Gigiri starting to see a slower growth in rental rates. On the other hand, Thika Road has surprisingly seen rental growth, in contrast to the general trend in the market. Recent completions Pipeline Key deals UAP Tower 29,000m² Britam Tower 30,000m² Imperial Health Sciences building purchased by Mara Delta Two Rivers Tower 21,000m² Hass Tower 1 70,000m² Avenue 5 10,358m² The Edge 17,652m² 4

5 Retail Wealth US$ 1,169 Shopping malls 362,000m2 Overview Kenya remains one of the fastest growing retail markets with the second highest retail penetration rate of 30%40% after South Africa. An economic growth rate of 5.9% as well as a growing middle class are key drivers of the successful retail market in Nairobi. The current economic conditions are also favourable for luxury brands to enter the market. Demand The city s retail market is largely driven by domestic retailers with very little vacancies in older retail accommodation. However we are seeing greater diversification with Rent Rental outlook US$ 370m² /annum the entrance of international brands such as French hypermarket Carrefuor, Turkish retailer, L.C Waikiki and South Africa s Foshini Group. With newer retail developments and a formalised market, we expect to see increasing international penetration in the coming years. Supply Nairobi is seeing vast expansion of its retail offering with the recent completion of the highly anticipated Two Rivers Mall now recognised as the largest mall in East and Central Africa. The city s retail stock is expected to grow by 53,657m² by the end of 2017 with the likes of Crystal River Mall and Village Market phase 2 in the pipeline. Along with Kenya s impressive economic growth, the demand for quality retail outlets and a broader range of shopping options are contributing factors to the current development boom in the city. Performance / Cost Improving quality of retail stock as well as traction from international brands has allowed landlords to quote substantially higher rentals in centres such as Two Rivers Mall. Vacancies remain below 5% in older retail centres giving an indication of good performance despite the entrance of new retail developments. Shopping malls Pipeline Key retail entrants Two Rivers Mall 62,000m² Crystal River Mall 19,000m² Carrefour Rosslyn Riviera 11,000m² Village Market Phase 2 21,000m² The Foschini Group Diamond Plaza 30,000m² Southfield Mall 13,657m² L.C Waikiki 5

6 Hotel Intelligence Tourism Tourist arrivals to Kenya have increased by 15.6% in 2016 from a growth rate of 12.6%, between 2015 and Demand Kenya has both leisure and business tourists, with a balance of international and domestic corporates, government, NGO, diplomatic and international leisure demand. Supply Current quality hotel supply in Nairobi is provided by 55 sizeable hotels with a total of 7,496 rooms. Global brands are penetrating the market with new supply of 4,074 keys due between Performance Occupancy rates decreased by 1.8% in 2016 at an average daily rate of US$141. The decline in these metrics led to a decrease in RevPAR, (US$73), by 2.7% as market demand decreased. Investment Nairobi has seen high quality supply enter the market over the past five years, including the Crowne Plaza, Radisson Blu and the recently opened Tune Hotel. Funding for hotels is primarily through local promoters with wide interest across numerous economic sectors. Equity is generally sourced from a number of private investors partnering in different deals, whilst debt is predominantly raised from local banks with the support of the promoter s broader balance sheet. International capital has been slow to enter the market as the local players have been quicker to take the opportunities. Recent openings Tune Hotel Nairobi 280 rooms Golden Tulip Grand Sapphire 196 rooms Outlook Nairobi is firmly positioned as the preferred regional headquarter location in East Africa, which will continue to drive demand for business travelers. Short term hotel investment returns will be affected by oversupply and we may see some distressed assets entering the investment transaction market. With the saturation of the 4- and 5-star markets in Nairobi developers are looking to the budget and serviced apartment segments as well as other provinces for new hotel opportunities. Liquidity may improve in the next three years but remains low in the immediate term. Pipeline Hilton Garden Inn JKIA 171 rooms Pullman Nairobi Westlands 320 rooms Village Market Midscale 200 rooms Quick Facts 5.9 million Tourist arrivals in ,074 New rooms expected ( ) 52.2% Occupancy US$ 1.8% 141 Average rate 0.8% US$ 73 RevPAR 2.7% 6

7 Contact us JLL Nairobi Delta Tower, Chiromo Road Tel Lucy Githinji Associate Director: Corporate Solutions East Africa tel With other regional offices in Johannesburg, Dubai, Abu Dhabi, Riyadh, Jeddah, Al Khobar, Cairo, Casablanca and Lagos Tom Mundy Head: Research, Sub-Saharan Africa Anthony Lewis Head: Capital Markets, Sub-Saharan Africa Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.