Steep land prices hurt industry development
High land prices in Kenya are locking out investors from developing industrial properties, says a report. GRAPHIC | NATION
What you need to know:
- The asset managers identified industrial property as one of the areas whose rental growth was accelerating largely due to low supply.
- Grade A offices in Gigiri, Nairobi fetch the highest average rent at Sh150 per square foot a month while Karen has the cheapest high-end office space at Sh110 per square foot.
- “In as much as there is demand in this space, developers are unable to get suitable land to develop — when they do their analysis they see it’s not viable,” said BAM.
High land prices in Kenya are locking out investors from developing industrial properties, says a report.
The cost of land along Mombasa Road and the Eastern Bypass, where huge tracts are available to set up such property are currently above Sh40 million an acre.
Britam Asset Management (BAM), in its report, estimates that to get a desired 12 per cent return at current market rate of Sh45 per square foot of industrial space, a developer has to acquire land at Sh15 million an acre.
Rental income growth
“In as much as there is demand in this space, developers are unable to get suitable land to develop — when they do their analysis they see it’s not viable,” said BAM.
The asset managers identified industrial property as one of the areas whose rental growth was accelerating largely due to low supply.
Residential, office and retail rental prices were growing at a slower pace as supply catches up with demand.
Office rent increased by seven per cent last year compared to 10 per cent in 2013-2014.
Grade A offices in Gigiri, Nairobi fetch the highest average rent at Sh150 per square foot a month while Karen has the cheapest high-end office space at Sh110 per square foot.
Mombasa Road, which has no Grade A offices, mainly due to traffic congestion, has the cheapest office space around Nairobi at Sh60 per square foot for Grade B spaces.
The Central Business District also doesn’t have any Grade A offices, which are classified based on parking space, road network and building structure.
Corporates have been exiting the zone due to traffic congestion in preference for Upper Hill, Westlands, Waiyaki Way, Kilimani and Ngong Road. Rents in the CBD average Sh90 per square foot.
Development of office property has grown in the past five years, with BAM estimating 3.8 million square feet will be put on the market this year, up from two million square feet last year.
Office space expected into the market this year include Britam and UAP Towers each with 300,000 square feet and Two Rivers’ 230,000 square feet.
Uptake has, however, been trailing supply, signalling the market could be headed for a peak.
