Key drivers in the Kenyan construction industry:
Kenya, having consolidated itself as a regional hub for trade and finance in East and Central Africa, has in the past few decades seen an exponential growth in the construction sector and is currently going through a construction boom. The government has invested heavily in the construction sector in order to improve the infrastructure such as road networks, Railway network etc. The substantial increase in its population, has also continued to put pressure on the need for affordable residential, commercial and industrial buildings which has further increased the opportunities in the construction industry with land rates remaining the major constrain. The sector has also gained from the devolution process, as resources that were centrally managed are now going down to the counties boosting the counties’ business environment and economic activities. The case for investing in construction sector is strong, with the following factors being amongst the contributing variables to this robust case:
The rapid growth in population and Urbanisation.
Kenya has faced major challenges in the housing sector but at the same time provided opportunities for investment in both residential and commercial buildings. According to a statement released by the Ministry of Lands, Housing and urban development on 6th February 2016, the country has been experiencing an annual shortfall of housing, exceeding 250,000 units. There has also been an occurrence of rapid urbanization which is as a result of devolution and realization of vision 2030. These pressures are already being felt and in a bid to cope with this rising urbanisation, entire new cities are already being developed such as Two Rivers, Tatu City, Tilisi, Garden City, Thika Greens etc. These ‘self-contained’ new cities, based on the work play-live concept, are intended to relieve the highly congested metropolises and minimise the need for inhabitants to go into the ‘centre’. Indeed, demand for housing is growing across all price points. Access to both prime and virgin land for housing have provided a perfect opportunity for investors in the sector.
READ: Construction project management
Deficit in infrastructure.
Despite the major infrastructural developments that have taken place in the past one decade or so that so the construction of Thika Super Highway, the upgrading of the Jomo Kenyatta international Airport etc. the country still faces a deficit in infrastructure including rail, roads and ports which presents a significant case for continuing growth in the building and construction sector. This has led to the government investing heavily in this sector. A good example is the ongoing construction of the Standard Gauge Railway which is expected to boost the country’s economy. The railway line which will run from Mombasa through Nairobi to Malaba on the Kenya-Uganda border is expected to enhance the movement of goods and people across East Africa. Currently, the project has up to 25,000 local workers. The government has also invested in the LAPSSET project, which envisages the construction of a port, power plant, railway and other facilities, would once underway become the East African country’s biggest infrastructure project. It is also planned to take in resort cities, an international airport and an inter-regional highway. With the government’s focus on infrastructure development along with the active participation of the private sector, this segment is growing rapidly.
Shortages of Office Space
The continued growth of the Kenyan economy has had a significant impact on the demand for commercial property to meet the needs of business, by way of offices, warehouses, hotels and retail shopping centres. Demand is strongest for high quality office space as Kenya continues to attract foreign investor who are out to access more businesses opportunities and set up local operations. Nairobi, for instance, currently faces a relative shortage of Grade A office space. The market currently has a surplus of Grade B office buildings with Mombasa Road being one of the adversely affected areas. Due to this, the acute shortage of high quality, well priced office space is being exposed. Areas like Westlands and Waiyaki way are experiencing shortage and rising demand. However, while there is demand for quality, well-located units, developers that have built office blocks without adequate planning in unsuitable locations or without supporting infrastructure will have trouble renting these properties.
The Rising Spending power of the Middle Class.
The increased purchasing power has contributed to the growth of the number of middle-income earners in the nation as a result of job creation backed by good education and entry of improved technology in different sectors of the economy. Educated youth are able to find lucrative jobs that provide a steady income allowing them to afford adequate housing via loans and mortgages. The power to purchase their homes or pay a higher rent has created a demand in the property market which is a source of revenue and delight to property developers. The youth therefore add to the number of local investors in Kenya. With an increasingly young and educated population, the potential in the construction sector is seemingly endless.