Research

2ND Half 2014

Kenya
Market UPdate

HIGHLIGHTS
• Upward revision of Kenya’s GDP
• Kenya becomes a Lower Middle Income Nation
• Commercial lending Rates remain high at 16%
• Kenya Shilling Weakens against Major currencies
• Diaspora Remittances up 10%
• Competition dampens growth of industrial land prices
• Expansion of city malls underway
• Decline of office space in 2014 compared to 2013
• Stable prime residential sales and letting market

KnightFrank.com
2nd Half 2014
Kenya
Market UPdate

Economy 8.4% in August of 2014. This could The Kenyan currency weakened by
be attributed to higher prices of about 5 percent against the dollar
In September of 2014, Kenya food and upward revision of power in 2014 mainly due to a slump in
National Bureau of Statistics revised tariffs. This rate however slowed hard currency inflows from tourism
the country’s GDP for 2013 from down to 6.0 % in December of 2014 following recent sparks of insecurity
KES 3.8 trillion to KES 4.76 trillion. reflecting significant declines in the in the country.
As a result, the growth rate in 2013 prices of fuel and electricity.
was revised from 4.7% to 5.7% Diaspora remittances increased
leading to a 25% increase in the Figure 2: Benchmark Economic to USD 738 Million in the second
value of the Kenya economy. Rates half of 2014 compared to USD 667
Million for a similar period in 2013.
However, in the Q3 of 2014, the 19%

economy expanded by 5.5% year 17% Figure 4: Total Diaspora

on year down from 6.2% in the 15%
Remittances
corresponding period in 2013.
Rates

13%

This boost has been attributed 11%

380,000

to an increase in construction, 370,000

manufacturing and insurance 9%

Remittance in USD '000'

activities (CBK 2014). 7% 360,000

5%
Jul/14 Aug/14 Sep/14 Oct/14 Nov/14 Dec/14 350,000
Figure 1: Quarterly GDP Rate Commercial Bank Lending Rate Benchmark Interest Rate

Inflation Rate KBRR 340,000

7
6.1
Source: Central Bank of Kenya 330,000
5.7 5.8
6 5.5

5 4.4 4.6 4.5 4.7

4.4 Commercial bank lending rates 320,000
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
GDP (%)

4
declined slightly in the second half
Source: Central Bank of Kenya
3
of 2014. This was attributed to
2
several initiatives by the Government
The share of diaspora remittances to
1
through the Central Bank such as
Kenya from North America increased
0
the introduction of Kenya Banks
2011 2012 2013 Q1 2014 Q2 2014 Q3 2014
from USD 624 million in 2013 to
Year Reference Rate and the successful
USD 677 million in 2014. This
Previous GDP Revised GDP issue of the Sovereign Bond. Despite
constituted a 48.4% & 47.4% of the
the decline the Kenya Shilling rates
Source: KNBS 2014 total cash inflows for the respective
remain high at 16% making investors
years.
seek alternative forms of financing
As the GDP per capita surpasses
such as borrowing in USD at 9%.
USD 1200, Kenya is now considered Figure 5: Remittance inflow share
a lower-middle income nation. by source
Figure 3: Foreign Currency
In the second half of 2014, the
Exchange Rates
government’s request to review
external borrowing ceiling upwards
from the current 1.2 trillion shillings 25.3%
148
to 2.5 trillion shillings was approved 145 144 142 141 47.4%

by the National Assembly. The

Kenya Shillings

bulk of this amount will be directed 118 115 113 112 112
27.3%

towards infrastructure projects

across the 47 counties. 88 89 89 90 90

North America Europe Rest Of the World

The Monetary Policy Committee AUG/14 SEP/14 OCT/14 NOV/14 DEC/14

Source: Central Bank of Kenya
(MPC) left the base rate unchanged US Dollar Sterling Pounds Euro
at 8.5 % for the fourteenth Consumption of cement increased
consecutive month. The Kenyan Source: Central Bank of Kenya 2014 from 2,302,404 MT recorded in the
Annual inflation rate accelerated second half of 2013 to 2,547,508
from 7.67% in June of 2014 to MT in a similar period in 2014.

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KnightFrank.com

Similarly, the value of approved South Sudan-Ethiopia Transport services continued to diminish.
building plans increased from circa Corridor Project (LAPSSET) Corridor Kenya’s GDP — the market value of
140 billion Kenya Shillings in the Program. The signing of the deal is all goods and services that a country
second half of 2013 to around 147 major advancement for the Lamu produces in a year — is expected to
billion Kenya shillings in the same Port South Sudan-Ethiopia Transport grow by a fifth to reach Sh4.5 trillion
period of 2014. Corridor (LAPSSET) expected to be ($51.3 billion) from an estimated
ready by the year 2030. The project Sh3.8 trillion in 2013 with the release
Figure 6: Value of Building Plans is meant to supplement the Northern of fresh data technically known as
VS Cement Consumption Corridor that handles most of the rebasing.
Kenya’s transit cargo. The LAPPSET
24,000 450,000 project will connect the East and Analysts expect the new data
West coast of Africa. The total cost to dictate future investment
Building Plans approved in KES'000 000'

Cement Consumption (In Metric Tones)

23,000
440,000

22,000
of the project stands at US$24bn. decisions, projecting that banks and
430,000
businesses are most likely to put
21,000
420,000
The project will not only improve their money in the property market
20,000 the economy of Kenya but also the in pursuit of higher returns from
19,000
410,000
lives of the people living along the increased activity and growth in the
18,000
400,000 transport corridor. The port of Lamu sector over the past decade
will handle 24 million tons of cargo
17,000 390,000
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14** once the project is complete.
Cement Consumption Actual Value of Building Plans Approved Retail
The government announced • Expansion of existing malls in
Source: KNBS
construction of 10,000 kilometer Nairobi
road network to open up remote • Reduced Supply in 2014
The close of 2014 saw the only
areas in the next three years. The compared to 2013 in Nairobi
listed real estate developer, Home
first phase of which is to comprise • Increased interest from
Afrika opening the sale of a KES 900
2,000 kilometers of rural roads and international Food Chain brands
million corporate bond at a 13.5%
was set to begin in the coming fiscal
interest rate. This is as momentum
year. Figure 7: Nairobi Supply of Retail
for the formation of Real Estate
Investment Trusts (REITS) lost steam Space
mainly attributed to legal hurdles as
none were yet to be listed despite Real Estate Market
the presence of existing regulations.
Kenya’s lucrative real estate sector
has rapidly expanded to become
the fourth biggest contributor to the
Infrastructure country’s wealth.
A deal worth US$480m was
The updated national accounts, set
signed between Kenya and China
to be unveiled by the Ministry of
Communication Construction
Planning, show that the contribution
Company Group to see the firm Source: Knight Frank
of the real estate sector to Kenya’s
construct 3 berths in Lamu port.
gross domestic product (GDP) has
The berths are part of the 32 berths The amount of retail space coming
been revised 10.6 per cent which is
expected to be constructed in the into the market reduced by 43%
more than double from the previous
port complex. The three berths to be in Nairobi as at the end of 2014.
estimate of 4.9 per cent in 2013.
constructed will facilitate handling However this number is set to
of general cargo, bulk cargo and increase in 2015 with the coming in
Growth over the past 10 years saw
container cargo. of over 1,300,000 Ft² of retail space.
the real estate industry dislodge the
retail sector as the fourth largest
US$50 million has already been set As at the end of 2014, the prime
contributor to the economy even
aside by the Kenyan government for retail rents ranged from KES 50-
as traditional sectors such as
the commencement of the project. 75/- for the anchor tenants, KES
agriculture, wholesale and financial
This is part of the Lamu-Port- 130/- to KES 250/- for Sub anchor

3
2nd Half 2014
Kenya
Market UPdate

tenants and KES 350/- to KES 450/- out culture mainly driven by an threat of oversupply which caused
for the line shops. This is up 10% expanding middle class with higher sluggish take up rates witnessed at
from 2013. disposable incomes. the end of 2014 as shown below

Sarit Centre completed an additional Office Figure 9: Average Prime Rental

floor to accommodate a surge in • Slow up-take of Grade B office Rate per month per Ft² (2014)
demand for retail space. However, space in 2014 compared to 2013
they are now considering a major • Decline of Nairobi’s office space
new phase that will incorporate a supply in 2014 compared to 2013
four-star hotel.
The second half of 2014
Greenhill Investment Ltd, the experienced a 25% decline in Grade
developer of Village Market and B office space absorption from the
Tribe Hotel has also embarked on first half of 2014.
an expansion plan of the mall. The
Village Market shopping mall has The amount of office space released
unveiled a Sh5 billion expansion into the market in 2014 declined
drive into new retail outlets, by circa 30% from 1.5 Million Ft²
restaurants and a hotel.The project Source: Knight Frank
in 2013 to 1.1 Million Ft² in 2014.
will involve construction of a 187- Although this expected to change in
room hotel complemented by a 2015.
conference hall with a capacity to Residential
host 500 people. Figure 8: Office Supply and • Stable prime residential sales and
Absorption Graph letting market
The mall is set to increase retail
stores by 75, build a new recreation The prime residential market has
centre and add two basement level a recorded a reduction in activity
parking spaces. The retail and in the second half of 2014. This
restaurant outlet are expected to be could be attributed to the reduced
complete by the end of 2015. international investor confidence
due to the insecurity concerns
Construction for the hotel and the experienced towards the end of
conference facility is scheduled to 2014, and the mismatch between
begin mid of 2016. demand and supply.

Similarly, The Junction increased the Rental activity in the prime

Source: Knight Frank residential market has been stable
number of parking slots through the
construction of a new parking silo in the second half of 2014 having
The major commercial office blocks plateaued in the first half of 2014.
that was completed in December
that broke ground in the second half
and accommodates 300 additional
of 2014 in Nairobi include a 200,000 Figure 10: Prime Residential
parking slots. This was in addition to
square foot office block along
refurbishment of its food court.
Waiyaki Way being developed by
Pan Africa and an 180,000 square
American fast food chains Dominos
foot development in Lavington
and Cold Stone Creamery are set to
being developed by Tiara Properties
open 16 franchised out lets in Kenya
Limited which is a joint venture of
over the next two years, having
Acorn Group and NSE-listed Crown
already opened four in December
Paints with at an estimated cost of
of 2014. The estimated cost of
KES1.2 billion
this will be KES 450 Million. Coffee
shops, restaurants and fast-food
The average rent per square foot in
outlets have been on an expansion
Nairobi has increased by 5% as at Source: Knight Frank
and capital raising plans in the race
the end of 2014. This is however
to tap Kenya’s emerging eating
lower than in 2013 where there was
an 8% increase in the rents charged.
This slow increase is attributed to a
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KnightFrank.com

Sale rates within the high end Meanwhile, Kenya Tourism Board a professional valuation firm to
residential market experienced a (KTB) said the government has determine the value of any property
decelerated increase from 5% in Q4 this financial year allocated more as each has its own set of unique
of 2013 to 1% Q4 of 2014 than Sh600 million for the board’s characteristics.”
operations which will be used to
Figure 11: Prime Residential Sale aggressively market the country in Knight Frank continued receiving
key international tourist markets to significant interest in prime
help the sector recover redevelopment land in its books.
The most notable transactions
being 8.9 acres in Loresho and 2.3
Industrial acres in Upper Hill, with the latter
• BASF opens local branch having transacted at over KES
• Competition dampens growth of 500,000,000/= Per acre.
industrial land prices.
• Strong demand for prime
redevelopment land
Source: Knight Frank
BASF- A Germany based chemical
manufacturer opened a KES 1.2
Hotel & Tourism Billion factory in Mlolongo for the
• Hotel chains in Nairobi bullish production of concrete mixture
despite insecurity targeting real estate and public
• Government to increase funds for works contractors.
tourism recovery
Land prices in Nairobi’s prime
Despite insecurity concerns industrial areas have more than
expressed by the hotel industry, City tripled since 2006 which is
Lodge Hotel Group, a South African mainly attributed to infrastructural
hotel group, is putting up a Sh2 improvement and land scarcity
billion three-star hotel at Centum’s principally along Mombasa Road
Two Rivers mixed development off between the central business district
the Northern bypass in Runda. The and the Jomo Kenyatta International
ground breaking for the 170-room Airport. This is still below the
hotel was expected in January of price for competing land uses i.e.
2015 with the construction expected residential & commercial office.
to be completed by October 2016.
The hotel will be the first constructed Figure 12: Average Land Value per
by City Lodge in East Africa. Acre per Location

Similarly, Ole Sereni, has planned to

embark on a US$ 20m expansion
project starting February, 2015 that
is set to include conference facilities.

The Government has earmarked

Sh900 million for tourism recovery.
Part of the funds are set to be
used for global public relations and
branding campaigns which are
aimed at improving the country’s
Source: Knight Frank Kenya
image in key tourist source markets
in Europe and the US to boost
“This is general information and
international tourist arrivals.
we recommend that any prudent
investor engage the services of

5
Research

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