The 10th Annual East Africa Property Investment (EAPI) Summit for the year 2023, was held at Upper hill’s Radisson Blu Hotel, Nairobi, between 17th May and 18th May 2023. While the topics were wide ranging, we highlighted some of our key takeaways from the different panellists and speakers.

• State of the Market – Market Not Yet Out of The Woods

The East African market has picked up from a period of turbulence mainly owing to the effects of Covid-19 pandemic, and investors are pretty confident about the market. However, key setbacks have continued to impact its optimum performance such as; inflation, taxations, the illiquidity in interbank rates, depreciating currency, and Russia-Ukraine war which has led to prices of key commodities increasing, as highlighted by majority of the speakers. Notably, dollar shortages have had a negative impact on the payment of property rents by some clients. Wolfgang Omondi, Head of Trading, Absa Bank Kenya, however indicated the market is getting into a consolidation phase and is expecting illiquidity to ease.

• Investment Dynamics – An Economic and Consumer Need/Trend Driven  Market

The region has evolved into  a structural demand phase from one previously driven by  demographic factors. While these demographic elements are still in play in some sectors such as residential, the larger real estate market is currently an economic and consumer needs driven  market. Charles Kanugi, Head of Property Asset Management at Britam also noted that investments in Real Estate were also impacted by other investment tools such as Government bonds and bills which tend to have higher yields compared to the majority of the real estate sectors. 

• Financing – Capital Markets As The Alternative Financing Way To Go

Financing has been a key challenge in the delivery and uptake of properties across the region owing to a mismatch in funding for developers and buyers. Commercial banks for example account for approximately 99% of project funding in Kenya, with capital markets accounting for only 1%. Access to bank loans is a tedious process with tighter collateral terms put in place, whereas capital markets across East Africa remain untapped. 

Darren Veenhuis, Head of Corporate Finance at Grit noted that while East Africa is a globally recognized regional hub, various international investors still have a challenge in understanding Africa due to minimal capital markets participation. 

On a lighter note, Tilda Mwai, Research Associate at Estate Intel, highlighted that there has been significant progress over the past decade in terms of the evolving landscape of deal flow to include key investors such as equity firms and Real Estate Investment Trusts.

Therefore, in order to create an efficient and optimal capital structure for Real Estate in East Africa, Ngatia Kirungie, MD, Spearhead Africa pointed out the following measures;

1. East Africa needs to learn from established global capital markets,
2. Policies need to be revised in order to get more REITs into the market as East Africa as a whole has got less than ten listed Real Estate companies, compared to other established regions,   
3. Transparency needs to be enhanced in the market. This can be done by creating a blueprint that investors can follow, and,
4. Periodical follow ups with clients is also a key measure to implement in order to meet their demands.

In summary, market players need to pull away from normalcy. There is a need to get alternative funding methods particularly through capital markets as they are more secure compared to the equity market, as well as restructuring existing funds to make them more competent. Moreover, there is a need to check for existing gaps in the market such as the development of institutional projects like healthcare, and the Affordable housing projects which have been undersupplied.

• Commercial Office and Retail Sectors: Sector Dynamics Are Shifting

In the retail sector, demand has been shifting to neighbourhood malls due to convenience. Additionally, Ashmi Shah, Retail Portfolio Manager at Knight Frank Kenya, highlighted that tenants prefer bigger malls owing to the various activities offered such as recreation. However, the uprising of smaller retail shops particularly in the post Covid era has been witnessed in the market owing to e-commerce strategy. As such current retail developers need to consider factors such as shoppers’ convenience, catchment areas and target demographic

On the other hand remote and hybrid working models have continued to shape the market performance and direction in the office sector. Various firms are looking for flexibility while also aiming on saving rents, and as such shared or serviced office space demand has been on the rise. Another key trend has been the demand for green office buildings by tenants as they aim to save on energy costs.

 

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