Nairobi’s prime residential rents decline by 2.9% in Q1 2016 – Knight Frank

A mixture of rising supply and falling demand resulted in a decline in prime residential rents in the first three months of the year, this is according to the Knight Frank Prime Global Rental Index.

The index, which tracks the performance of luxury residential rents across 17 key world cities, showed prime rents in Nairobi decreased by 2.9% in the first quarter. In Nairobi, the PGRI tracks prime residential rents starting from Sh250,000 for apartments and Sh300,000 for townhouses and stand-alone houses.

Prime rents remained stable for the better part of 2015, hence the significant impact over the 12- month period to March 2016. The decline can be pinned down to increased supply, giving tenants choice and room to negotiate with landlords.

The top-end market segment is dominated by expatriate and corporate tenants, who pay out of their accommodation allowances or are housed under corporate arrangements. According to PGRI, one of the factors affecting demand from expatriates has been the slowdown in the oil industry which has resulted in downsizing of operations by firms in the sector.

Charles Macharia, Senior Research Analyst at Knight Frank Kenya observed “Demand for prime rental properties has traditionally been from expats. Rents have trended lower as we are seeing weakened demand from this segment of the market due to multinational firms downsizing as a result of adverse economic circumstances driven by low commodity prices.”

In contrast, prime residential prices in Nairobi increased by 1.5% between December 2015 and March 2016, and 3.3% in the year to March 2016. Usually, luxury rental and sales markets tend to move in opposite directions, with buyers targeting capital appreciation. The best in class properties are nonetheless still attracting high-paying tenants.

South Africa’s Cape Town posted a 1.5% increase in prime residential rents in the year to March 2016, as well as on a quarterly basis. As a result of the decline in Nairobi and slower growth in Cape Town, Africa has displaced Europe as the weakest-performing region, with rents falling by 3.2% annually on average.

Toronto, Canada, and Guangzhou, China, topped the index with annual prime rents increases of 8.9% and 5.3% respectively. Of the 17 cities tracked by the index, 11 recorded flat or falling prime rents over the last 12 months.