Kenya's real estate market will be driven by sustainable projects

Due to increased demand, sustainable projects are expected to be the driving force behind Kenya's property market.

Buildings that fail to comply with environmental, social, and governance (ESG) regulations risk becoming "irrelevant" in the future, according to real estate professionals such as developers and bankers.

This was revealed at the East Africa Property Investment (EAPI) event, which was held under the theme A Renewed Focus. According to host Kfir Rusin, the summit aimed to provide leaders a chance to outline their strategies around a new set of increasingly established and resilient fundamentals.

Continued infrastructure development and new real estate regulatory reforms, as well as Nairobi and Rwanda's Kigali establishing themselves as regional economic and innovation hubs, are among the fundamentals.

Other causes include the government's continuous focus on launching and completing affordable housing initiatives, as well as ESG principles guiding investor, consumer, and occupier behavior.

Meanwhile, other commercial entities continue to make contributions to the real estate sector, but all with an emphasis on ESG compliance.

Somaya Joshua, Absa Bank's Head of Commercial Property Finance for the Africa Region, noted that more funding has been offered to Kenya in the real estate sectors of offices, retail, housing, and industrial.

"We've seen a rise in interest in ESG projects and noteworthy success on qualifying structures in other regions, where we've been able to arrange specific milestones into transactions that, if achieved, may result in a financing advantage to clients on a case-by-case basis."

"Typically, these advantages come to clients once they fulfill particular targets in terms of solar capacity, water usage, and socially important issues like transformation and housing," she explained.

Future developments, according to Gerhard Zeelie, Divisional Executive at Nedbank CIB's Property Finance Africa, risk becoming irrelevant if they are not ESG compliant. "Investors in Europe, the United States, and the Middle East are all focused on ESG, and assets that do not comply with fundamental ESG are unlikely to be marketable," he said.

Nedbank was actively investigating prospects in Kenya and the wider region, according to Zeelie, with a particular focus in retail and light logistics.

Niyi Adeleye, Head of Real Estate Finance, Africa Region, Standard Bank, stated that it is becoming increasingly important to evaluate all aspects of ESG, not just the environmental aspect.

"From an African perspective, we believe it is critical to consider all of the measures' characteristics (environmental, social, and governance) since they remain current and relevant as the sector grows across markets," Mr Adeleye added.

According to Mr Adeleye, Standard Bank's preferred real estate segments must be relevant to domestic and international capital sources over the medium to long term horizon, while also improving quality of life, enhancing the creation of social and commercial real estate infrastructure, and achieving environmental and social impacts.

The bank aims to assist in the growth of these markets' real estate capital ecosystems.

"We see interest in the industrial sector, cheap residential sector, corporate lodging, demand-matched commercial assets, and new asset classes like digital real estate, student housing, and other comparable alternative segments" in this regard, he said.

According to Estate Intel Research Lead Tilda Mwai, a flight to quality and the need for flexibility are also driving the regional real estate market. These are driving demand in a variety of industries.

"In Nairobi's office market, for example, despite a supply glut, Grade A offices have continued to outperform other classes, with certain office parks, such as the Garden City business park, reporting occupancy rates of up to 90%." Kampala and Dar es Salaam are in the same boat. We expect demand for Grade A offices to increase as a result of the surge of oil and gas occupiers expected in these areas," she said.

These developments are also affecting the logistics industry, with demand for purpose-built storage increasing over the last five years, prompting global investors and developers like as GRIT and agile to set its sights on the region.

Ms Mwai stated, "We expect this dynamic to continue to play out in the market."

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