Nairobi rents rise by highest margin in 2012, survey shows

Nairobi’s rate of rent increase was more than three times the global average. FILE 

By John Gachiri
 

 

In Summary

• Knight Frank said rents rose by the highest margins (17.9 per cent) in Nairobi’s upmarket suburbs, placing the city ahead of 15 other cities in Africa, Asia, Middle East and Europe.
• Globally, rents increased by an average of 5.1 in 2012 meaning Nairobi’s rate of rent increase was more than three times the global average.
• The average size of a mortgage loan stood at Sh6.4 million in 2012 up from Sh5.6 the previous year, according to a CBK survey early this year.

Nairobi’s rise as a hub for multinationals entering the emerging African market significantly increased office rents last year making the Kenyan capital one of the most expensive places to let space in the world, a new property index says.

Property consultants Knight Frank said rents rose by the highest margins in Nairobi’s upmarket suburbs, placing the city ahead of 15 other cities in Africa, Asia, Middle East and Europe.

“Nairobi has gained significance as a regional hub that is attracting many transnational corporations who are driving rents up,” said Knight Frank (Kenya) chief executive Ben Woodhams.

Nairobi has also benefited from the arrival of oil giants such as Tullow, BP Group, and Shell following the recent discovery of oil in Turkana County.

The petroleum companies have come along with a large number of supporters such as US security firm Halliburton who are finding tenancy in the city’s high-end offices intensifying competition for space.

The list of multi-nationals that have recently set base in Nairobi include General Electric, Google, IBM, Visa International, Pepsi, Nestle, Foton Automobiles, Bank of India and HSBC.

“Our occupancy rates are well into the 90 per cent probably 95 per cent level. We even have a waiting list on some of our properties,” said Mr Woodhams.

Knight Frank’s Prime Global Rental Index, which compares the performance of high-end letting markets across the world’s major cities, showed that Nairobi’s rents rose by the largest margin in 2012.

“Fifteen of the 16 cities included in the index saw rents rise last year, led by Nairobi (17.9 per cent), Dubai (14.3 per cent) and Beijing (8.5 per cent),” said Knight Frank Prime Global Rental Index for the last quarter of 2012.

(Read: Nairobi tops global cities in property prices rally)

Globally, rents increased by an average of 5.1 in 2012 meaning Nairobi’s rate of rent increase was more than three times the global average.

Commercial rents per square metre rose to Sh65 from Sh55 between 2012 and 2011, an 18 per cent increase said a senior manager at Tysons, a real estate valuer and manager, reflecting Knight Frank’s findings.

Service charge on the properties increased to Sh25 per square metre from Sh20 over the same period, a 25 per cent increase, the Tysons manager said.

Companies relocating their regional headquarters to Nairobi are flying in a large number of expatriates, feeding the high-end market for residential property. Knight Frank reckons that rent increases in emerging cities such as Nairobi could also be attributed to a steep rise in the buyers’ market, which has made it cheaper to rent rather than buy a house.

“A tight mortgage market along with limited supply (in the established markets) and rising property prices (in the emerging markets) pushed many would-be purchasers into rental accommodation,” said the Prime Global Rental Index.

Realtors said high interest rates, taxes and limited availability for both commercial and residential property have contributed to the steep rise in rents in Nairobi’s upmarket estates.

TMC Africa chief executive Carol Kariuki said the high interest rates that peaked in 2012 had discouraged borrowing to buy a house, tipping the scales in favour of renting.

“If you can rent a house in Kileleshwa for Sh55,000 when the equivalent mortgage is Sh100,000 it makes sense to rent,” said Mrs Kariuki.

(Read: High mortgage rates erode income on rental houses)

The Central Bank of Kenya (CBK) increased the base rate to 18 per cent from six per cent in the fourth quarter of 2011 and commercial banks responded to the signal with similar interest rate increases that doubled monthly repayments for home loan borrowers.

The average size of a mortgage loan stood at Sh6.4 million in 2012 up from Sh5.6 the previous year, according to a CBK survey early this year.

Besides, Kenya Revenue Authority’s (KRA) quest to rope in landlords through rent tax has resulted in a general increase in rents as the property owners pass on the burden to the tenants.

KRA is pursuing landlords as part of the strategy to meet the ambitious Sh818 billion revenue target that the Treasury set for it in the current financial year.