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Report: Nairobi’s Economic Outlook

Nairobi city

The recently released Nairobi City Report presents a promising year ahead.

Nairobi is not only the capital city of Kenya, it is the centre for economic activity in East Africa. The city plays a key role in the economies and business in the Sub-Saharan Africa region.

Despite the growing debt concerns in Kenya, President Kenyatta’s Big Four Agenda, focused on investment that will promote expansion in the manufacturing sector, provide affordable housing, universal healthcare and providing food security, should stimulate economic activity and employment.

According to JLL’s City Report, investor confidence has withstood the recent economic challenges and the long-term prospects are encouraging.

Overview

The second half of 2018 shown signs of recovery in the economy following the positive GDP growth figures in Q2 2018 (6.3% y/y). The index remained within the same range to December 2018, closing the year at 53.6.

Although there has been some volatility in the market, Stanbic Bank Kenya Purchasing Managers’ Index (PMI) has improved notably to 54 index points in October 2018, from a low of 34.4 index points in October 2017. Recovery has not been without its challenges and confidence in the  economy has been hit by rising debt concerns, with the IMF increasing the economy’s debt stress risk from low to moderate.

Over 70% of Kenya’s sovereign debt is US Dollar denominated, further exposing the country to exchange rate risk.

Occupation Market

Strategic decisions by a few multinationals in the Kenyan market have resulted in some downsizing of operations. Coca-Cola announced retrenchments, joining Eveready Kenya
and Cadbury earlier in 2018, while Nestlé downscaled its workforce in 2017. While this is likely to result in some vacancy growth, there remains continued interest in Kenya: local and regional players continue to keep demand for accommodation in the country alive.

Investment Market

The prolonged wait for the scrapping of interest rate caps – which is now unlikely to happen after the National Assembly’s Finance Committee withdrew its decision to amend
the Finance Bill – continues to be a challenge for the investor climate. Although investment activity in the commercial property space is not totally dependent on bank credit, the interest rate caps have hindered business activity primarily for small and medium size enterprises. Be that as it may, developer activity remains robust, with several skyscraper buildings under development and others in the pipeline.

Take up in the first phase of Tatu Industrial Park is also indicative of a recovery in general economic activity in Nairobi. The first phase of Tatu Industrial Park is 85% sold out and one of the developers, Africa Logistics Properties, has started preparation on a second phase of its development due to high demand. Limited supply of light industrial accommodation has contributed to pent up demand in the sector and further expansion in this sector could improve overall business efficiency in the economy.

An increase in investor and developer activity during the first quarter of 2019 is expected, such as from the recently launched Nairobi Gate Industrial Park.

Outlook

President Kenyatta’s Big Four plans promise to be beneficial to the economy’s growth and GDP is forecasted at 5.8% in 2021 by Oxford Economics, improving from a low of 4.9% in 2017.

“Implemented successfully, the economy may be in a better position to manage its rising debt obligations and provide some economic stability.”

The property market has been static for the last 18 months, but is showing signs of bottoming out. There remains excess supply to be taken up which should be absorbed with the gradual recovery in economic growth.

Long term confidence is visible in the ongoing investor confidence in Nairobi; Sanlam Towers has been completed with a speculative component to meet future demand, while the office market anticipates the imminent completion of One Africa Place and The Promenade, both expected to draw occupier interest.

View the report in its entirety Nairobi City Report January 2019

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