Burble Burst? Not the Kenyan Real Estate Market

The  Kenyan Real Estate Market is not anchored on Mortgages. The strength of the growing mortgage market  remains under 30% of  loan portfolios , this is despite  its exponential increase  in Kenya. That alone  will not cause a market collapse, at-least not in the medium term.

Image Courtesy: Bitcoin.com

What we are witnessing from Q4,2016 is the cyclical nature of Real Estate which will eventually result to an eminent Market correction ; Rising demand, market peaks, falling markets and bottoming out.

Real Estate Cycle
Image Courtesy: CA, Reality

One-stop shops no longer in vogue? What next for brick and motor retailers and landlords?

We live in the information age. Consumers are empowered by information on what to buy, where to buy and at what cost. As such, rather than going to one place to buy everything, consumers are increasing bargain hunting online or at warehouse clubs.

Begs the question, is there still relevance in one-stop shopping outlets? Relevance of malls?

Consumer tastes continuously evolve; from preference to big box stores to online bargain hunts. Retailers who succeed, have demonstrated evolution and investment parallel to their consumers. Some customers go for among others value pricing, some for luxury and others for the experience.

As a landlord, who are you targeting for your brick and motor?

Successful retailers are becoming increasingly aware that they cannot be everything (one-stop) to every customer. Rather, their focus should be hinged on the core goods that their customers come in for and not the things these customers can buy online or can find in warehouse clubs.

Image Courtesy; Jeff Ostrowski | Palm Beach Post 

There are successful retailers who have retained their brick and motor outlets. These retailers are the ones who have curved their niche in experiential retail to attract and retain the modern day consumer via value pricing , luxury or aspirational shopping.

Day to Day is a discount retail store in Dubai with focus on value . Goods retail between 1-10 AEDs or 1-20 AEDs. Items are highly discounted.

Image courtesy: Touristino

Louis Vuitton is a boutique store which targets luxury consumers.

Image Courtesy ; Forbes

Aspirational shopping which targets to incite excitement among shoppers by hinging on lifestyle marketing



Purpose Built Real Estate Investments, Why Now?

Commercial Real Estate Investments in Kenya are at a critical cross road.  The residual supply from FY20 further exacerbated by current economic tail winds, givebacks which are funneling space back to the market and negative demand shocks from Covid-19 spell an overall bleak outlook for real estate investors in the medium term.

The persistently bullish tenant driven commercial real estate market will be characterized by ; further softening of already suppressed rentals, rental abatements, higher break rights and built- out allowances.

Despite the bleak outlook, pockets of value exist in the commercial real estate market segment for differentiated  real estate products. i.e. Purpose Built Real Estate

Workplace – The New Normal

Futuristically, does the office have a new purpose apart from remaining that space from which businesses foster creativity and innovation, cultural connection and advance learning?

Image Courtesy CBRE

The future role of the physical office remains the biggest question corporate executives must answer today. It now emerges that a hybrid Workforce and flexible workplaces is a combination which will ensure that the strong commercial synergism from humans innate sociability which underpins the future of work is harnessed.

The future of the office – how will it unfold?

The Market is on 6’s and 7’s – that heady mix of facts and opinion driving decision making around the future of work.

Do we bolt on old ways of doing things and hope for the best? Will we survive? Is the workplace really ready to adopt Working from Home (WFH) ? If not, do we continue embracing the drudgery of the commute- work- commute axis ?

Image Courtesy: Africa Business Community

Back of the envelop numbers suggest nearly 8 in 10 employees want to continue working from home half the time.

My thoughtful reflection:

The new norm of office space occupation must be efficient and account for flexible office hours. Only the agile, innovative and adaptable workplace enabled businesses will thrive. All pointers to a tee on increased adoption of remote working:.

Although most employees might work from home full time, a sweet spot is 2-3 days a week. A majority of employees want a mix to ensure that their face to face collaboration and the social time is achieved at work , as their heads- down time is achieved from home. (Global work from home experience survey 2020) .


The EMEA Occupier Update

James Maddock , Head – Occupier Services Cushman & Wakefield

Global Workplace Analytics

Airbnb’s . Coping strategies that matter during Covid-19

Image Courtesy:©Ranjit’s Airbnb , Nyali- Kenya

The Holiday Apartment accommodation segment has had exceptionally rapid, far-reaching and extra ordinary success in the past decade. This is in comparison to traditional hotel accommodation.

Airbnb success has spawned its competitors including Hotel Chains to re-think moving into similar business. Hyatt, Marriott International and the Hilton have been exploring options to venture into the home- rental business.

Due to the Corona Virus Pandemic, the Tourism Industry has been grounded . Reservations for home- rentals which has largely been exclusively by foreign tourists have stopped. Its unlikely that these foreign tourists will book overseas home-rentals in the foreseeable future.However, domestic tourists are likely to travel hence look for great bargains in home- rentals.

Image Courtesy: The Guardian – An increase in Home rental business

What this means for owners of home rental business is that they must adapt to the situation.

Some of the coping strategies ;

  1. Target domestic tourists in their marketing strategies due to the inevitable pent up demand for home -rentals due to desire for local travel with an aim by domestic tourists to pamper themselves.
  2. Embrace flexible and Instant booking and cancellation policies.
  3. Adopt appropriate SEO’s
  4. Embracing longer term tenancies rather than the more profitable short-term lets

Avic International’s Global Trade Center: Why Nairobi’s A-Grade commercial office rentals may hit an all-time low .

Image Courtesy : Sahara Tribune

There is a palpable sense that Avic International’s GTC’s scheduled offload into Nairobi’s  Real Estate Markets stock by Q4,2020 will have huge impact in the commercial office market – specifically, the A- Grade segment.

With an estimated 120,000SQM addition of A-Grade and Hotel Office space by Avic, further softening of the already deflated rentals is inevitable. With an exception of Premium class premises such as Vienna Court, A-Grade space rentals currently average at USD $11/SQM/M which is anticipated will soften to lows of between USD $9 -$10 /SQM/M in the medium term.

The current tenant driven Commercial Real Estate Market will remain bullish exhibiting increased flexibility of lease terms and concessions favoring tenants .

Current Scenario- Brick and Motor Retail Landscape

The Rapid spread of Covid-19 has greatly impacted the Brick and Motor retail landscape as hereunder;

  • Stores remain operational under strict lock-down measures.
  • An increase in tenant relief packages for specified relief periods. However, Anecdotal evidence alludes to rental collections of barely 15% for the rent billing quarter commencing Q2,2020 where there has been no tenant relief packages.
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South Africa’s retail landlords : SA REIT Association (SA REIT), SA Property Owners Association (SAPOA) and SA Council of Shopping Centres (SACSC).
  • Where tenant relief packages are non existent;
    • (a) this has seen an increase in rent deferrals (Force Majeure) and subsequent lease extensions and talks by inline stores and smaller retailers voiding their leases to have recourse to stop paying rent when anchor stores aren’t driving traffic.
    • (B) Some big retailer chains are using this crisis and related shutdowns as leverage to play hardball in rent negotiation when they dont need to.
  • From a Mall Operationsl perspective ;
    • (a) There is an increase in retention of an essentially lean mall operations workforce to cut- back OPex
    • (b) An increase of crowd pulling incentives for customers /shoppers – Free Parking

Credits :

  1. Uday Sampath Kumar and Medha SinghReuters

Why home offices are not enough for businesses and why WFH alludes to a false economy.

Would the costs of employee wages, expenses on requisite data security and technological backup, social and psychological costs of isolation, lack of information and opinion sharing be a worthy tradeoff for benefits of working from home?

Artur Sutor , Cresa Poland gives more insight on why there is still need for Offices and why the home office is not enough in business.


Credits: Cresa South Africa

Demand for logistics and Industrial warehousing on the rise? Here’s why

The real estate market has indicated a slight spike in space needs to accommodate players in e-commerce, healthcare , retail (supermarkets) and their relevant logistics providers albeit short term.

GDP Growth might restart in Q3, 2020 attributable to stimulus despite GDP decline in Q1 and a subsequent decline in Q2. Uncertainty over unemployment remains under review and may remain elevated for the next 24 months.

Property Market is dynamic and will have some sectors doing better than the others. Industrial sector is indicating a positive outlook , the office market will reasonably resilient . Unfortunately with the F&B,lodging and retail have taken a hit and will take sometime to recover.

WHY Industrial and related logistics?

  1. Spike in online retailing (Courtesy : IMRG) which may be sustained post covid -19 translating to increased customer base .
  2. Preference for click and collect and home deliveries service options for supermarket alludes to opening up of more regional / local distribution stores with locally held stock capacity
  3. Supply chains are not set up to accommodate supply disruptions mismatch. Consequently, demand for consumer and produce (fast moving goods) are on the rise with a sudden decline in non- moving goods. This mismatch results to demand for both (storage for produce and storage for non moving goods).

We are at a place where ‘acceptable’ is no longer acceptable in Real Estate – What next after Covid -19?

There is no question that the coronavirus outbreak will change how governments, businesses and individuals think about public health. Planning for future outbreaks will likely become a part of risk evaluation and management.

There is now a heightened awareness of how buildings influence our health, and if people weren’t paying attention before, they’re certainly paying attention now.

The heightened awareness, I think, is going to come with a demand for better-performing buildings related to our health,” Allen ,Harvard assistant professor of exposure assessment science

How are the designs of our buildings combating infectious diseases and improving public health outcomes?

Are there design measures which might be instituted in buildings to help safeguard against the worsening of the infectious disease spike in the future?

  1. Quality of air ventilation – Better mechanical air filtration systems to reduce airborne particles, fewer forms of disease will be able to spread.
  2. Heightened awareness and concern about disease transmission
  3. A surge of touchless and  sensor technology beyond just the entry doors to a building. Rather to extend to touchless entry to elevators, tenant suite doors and even bathrooms. The use of artificial intelligence and voice-activated technology should also see a surge.

Touchless technology already exists for faucets and hand dryers or hand towel dispensers, but has not been implemented for the simple task of opening a bathroom stall door. 

4. According to core net global , the average U.S. office dropped from 225 SF per employee in 2010 to 150 SF now.  To combat COVID-19many employers to shift to a working-from-home model. This shift could extend beyond the life of the pandemic and change how companies fundamentally think about occupying space. The rise of certain technologies, like videoconferencing platforms, group-chat programs and VPNs have all made it easier to work remotely. As the mass working-from-home experiment continues across the globe, some employers may rethink how they allow their employees to work.

5. Designers are also thinking about how some technologies and materials traditionally used in hospital and healthcare settings could be introduced into other building types. Certain stainless steels, copper and brass have anti-microbial properties, and could see increased use in designs. There could also be a move toward paints and coatings that also resist germs.

There is potential for a rating system for a material’s ability to resist contaminants and microbes.

Credits: Joel Allen – Healthy Buildings program at Harvard T.H. Chan School of Public Health