COVID-19 has caused unprecedented disruption to the global economy over the past few months. The immediate impact on the sector has been:
- Reduction of the labour force and disruption of supply chains, which is expected to translate to longer development periods,
- A slowdown in building approvals as public offices such as City Hall remain closed,
- Reduced construction activities by developers in a bid to reserve their cash at a time when market liquidity is likely to decline,
- Little to no collections as Lands Registry was closed hence banks and mortgage buyers not releasing funding,
- A slowdown in collections for those who have purchased off-plan real estate on instalment plans, and,
- Reduced funding to the sector due to general risk aversion during the pandemic.
- Lower Rents and Prices - Decline in income will ultimately lead to homebuyers and renters having lower funds to spend on their monthly housing costs, thus decline in effective housing demand leading to lower home prices and lower market rents. We expect occupancy rates and uptake to record flat growth, largely attributable to restrictions on individual contact or movement during this pandemic.
- Reduced Occupancy Rates - Office buildings' occupancies are set to decline as companies resort to make working remotely a permanent feature. The market turbulence will see businesses scaling down operations and might, therefore, lead to increased vacancy rates in the near term,
- Reduced foreign investments - Firms globally have put on hold expansion as they adopt a wait and see approach, leading to a drop in office space demand, and,
- Collections - Challenges in the collection of rents and as such the yields in commercial offices are expected to fall in the near term.
- Shops’ Closures - Retailers such as Shoprite, Naivas, and, Tuskys have shut down some of their branches as an attempt to cushion themselves against the impact of the Coronavirus amidst declining revenues from reduced footfall, and,
- Increased Focus on E-commerce – There has been increased sales of fast-moving consumer goods by retailers through e-commerce firms such as Jumia, as most Kenyans continue to stay at home so as to adhere to the government’s social distancing rules.
- Closure of Major Hotels - The hospitality sector has been the hardest hit owing to its heavy reliance on tourism and the MICE (Meetings, Incentives, Exhibitions and Conferencing) sectors. In 2019, Kenya’s international tourist arrivals from Europe and Asia accounted for the majority share in 2018 at 56.8% and 13.9%, respectively. Travel restrictions, which have completely stopped international tourist arrivals, have led to the closure of various popular hotels such as Sarova Hotels and Fairmont Hotels,
- Lay Offs – For hotels still in operation, reservations are low as locals shy away from hotel stays in a bid to cut down on consumer discretionary spending. This has led to a majority of hotel staff getting laid off, and,
- Marginal Revenues for Serviced Apartments - Unlike hotels which tend to attract short-stay visitors, serviced apartments revenues will continue to be sustained by the presence of long-stay visitors in the near-term.
- Disruption of Supply Chains – There has been a negative impact on the supply chains as most developers source for construction materials from nations such as China. We expect this to translate to longer development periods owing to a shortage of resources and ultimately reduced building completions,
- Lack of Project Finance - Decline in project financing will be apparent as lenders would be uneasy to finance construction projects owing to the current uncertainty in the economy coupled with delayed project completion dates thus, it will take longer for them to get returns on their investment,
- Reduction of Labor - The pandemic’s direct impact in the real estate sector has been the immediate reduction in the labour force as construction sites adhere to guidelines issued by the National Construction Authority (NCA) requiring contractors on-site to reduce the number of workers to a level that can allow workers keep at least a metre apart, and,
- Absorption of Surplus Space - In the short term, we expect the slowdown in construction activities to help accelerate the movement of existing property inventory, thus, facilitating a demand-supply equilibrium in sectors experiencing oversupplies such as the retail sector.