The urban housing sector in Kenya is ironic: while it offers tremendous investment opportunities given the growing housing deficit of over 150,000 housing units per year, the necessary movement of the supply curve has been lacking, resulting in high-priced properties that are expensive to buy or lease for many, but few. This has culminated in the proliferation of inadequate housing units, such as squatter settlements and shanty towns, and irregular and incremental rental charges by landlords.

The rental markets in Kenya are clearly different for urban and rural areas of Kenya as a large number of people move to the urban areas where the main markets, industries, institutions and businesses are located.

Current rent – Market trend

Availability of rental properties

In rural Kenya, residential and commercial rental properties are readily available and affordable. 82% of the people who live here are homeowners.

Residential rental property attracts relatively low returns with one-bedroom houses renting for as low as Ksh3,500 – 5,500

Commercial rental properties have better returns compared to residential ones

UrbanKenya it’s totally different, with people having to fight for the few commercial and residential rental properties available.

Rental properties within the CBD are hard to come by and when you are lucky enough to get a vacant space, you part with a significant amount of money not only to rent the property but also to counter other competitive offers made for the same space.

Offices located outside of the CBD and in the suburbs are generating high returns as industries and organizations seek to not only reduce rental expenses, but also deal with the parking difficulties and traffic congestion that are prominent in the CBD.

The middle class is increasingly living on the outskirts of the city in search of affordable and comfortable residential rental properties.

Due to the lack of available and affordable space in the CBD, property owners within this area are reaping great benefits by dividing available commercial space into sixty-square-foot stalls rented at competitive rates by small-scale merchants such as boutiques.

The lack of well-located land in major cities like Nairobi has pushed real estate development along major roads, such as the Mombasa highway, where land for development is affordable and available.

Worrying trend?

There is a growing trend among the Kenyan upper class that may be cause for concern. In an attempt to increase the supply of housing units and minimize the costs associated with single-family residential properties, Kenya’s upper class is shifting towards modern and luxurious, but cheaper flats and apartments, which have mushroomed in exclusive neighbourhoods. The downside is that middle-class home prices have risen sharply beyond the means of legitimately middle-class people.

type of tenure

Periodic tenure is the main form of tenure in Kenya, with tenants leasing rental properties on a monthly and yearly basis until either party terminates the tenancy upon notice.

Tenants in Kenya can be classified into the following types paying a range of rent:

Low-income: often the urban poor who rent in squatter settlements and slums, paying as little as Ksh500 for single rooms

Lower-middle income: Ksh6,000 – 40,000 for 1BR houses

Upper-middle income: Ksh50,000 – 250,000

High income: rent in exclusive neighborhoods and can spend from Ksh300,000

rental yields

Commercial rental properties have the highest returns in urban Kenya, where the real estate market is growing by 20% per year.

For 2011, the luxury real estate market in Kenya registered the highest price increase anywhere in the world.

Properties in specific urban areas are seeing a 50% increase in rental prices

Kenya’s elite are favored the most by the booming real estate market, as they are the only ones with the kind of money needed to buy the expensive properties, develop and rent them out and enjoy the return on their investments.

Rental returns in major cities such as Mombasa and Nairobi are approximately 6-7% per annum and 3-bedroom houses attract rental returns of 5.72% per annum.