Two Kenyan investment firms are engaged in pursuit of opportunities in East Africa’s real estate market.

Centum and Britam, the two NSE-listed companies, have in recent months launched a series of real estate projects targeted at Kenya’s high-end market, with their sights trained on other East African market too.

READ: Inside Centum’s regional strategy

Britam is building in Nairobi a commercial property at a cost of Ksh7.1 billion ($79.2 million), while Centum is constructing Two Rivers, a real estate project that the investment firm says will be the largest in sub-Saharan Africa — excluding South Africa.

Two Rivers is expected to cost Ksh15 billion ($167.45 million). Centum is also building the Pearl Marina in Uganda, a high-end real estate project that will house the region’s first inland marina.

READ: Centum gets Uganda's approval on real estate project

Analysts say the growing demand for top end real estate is driven by the changing consumer trends, the improving regulatory environment and the drive by NSE-listed financial service firms to cut their dependence on quoted securities, which are vulnerable to shocks.

These factors reinforced by the relative high returns from the sector, some high-end real estate projects are returning as much as 30 per cent per annum.
Over the past five years, the expansion of the region’s retail sector has spurned demand for malls.

The allure of real estate has been further enhanced by the tendency of the region’s supermarket chains — Nakumatt, Uchumi, Tuskys and Naivas — to  prefer leasing malls as opposed to constructing their own premises.

According to Citigroup, Kenya’s retail sector is one of the largest and fastest growing in sub-Saharan Africa, with the investment group estimating penetration at 30 per cent or second to South Africa’s 60 per cent.

“Look at Uchumi, Tuskys and Naivas… all of these companies are expanding… no one wants to lock in capital in building… that’s why they are all leasing. This of course opens opportunities for firms like Centum and Britam,” said an analyst at an advisory firm who did not want to be name, as he consults for one of the companies.

Centum says it has pre-let over 50 per cent of Two Rivers malls with a further 20 per cent being in final negotiation. Carrefour, the fourth largest retailer in the world will be the anchor tenant.

Other players

The heavy investment into high-end real estate projects by the two firms follows a similar path to that taken by Actis, the PE firm.

Actis has made investment in an office development dubbed the Nairobi Business Park as well as build the Junction, a shopping mall. Actis is also building the $250 million Garden City project, which will be a mix of a mall and residential houses.

For Centum, the preference for high-return real estate projects contrasts with that of fellow NSE-listed investment firm TransCentury which has opted for a low risk low return investment, putting more allocations into the energy sector.

Coming for the high-end housing projects has also been driven by demand from individual consumer demand.

According to a Standard Chartered consumer aspiration study, seven in every 10 middle class Kenyans plan to buy or move into a better neighbourhood in the next two years with a large number looking at estates with access to malls and other social amenities. In total, the government estimates that there is a housing deficit of at least 150,000 houses every year in Kenya.

The introduction of real estate investment trusts (Reits) is also another attraction. Reits allow developers to list part of a property on the NSE, allowing the company to unlock value. Centum has already applied for a Reits licence and plans to list some of its real estate projects.

While Britam acquired a stake in Acorn, which manages a property for clients such as Coca-Cola, Centum established Athena Properties.

READ: Britam’s buying spree shows insurers are ready to expand beyond region
“Our partnership with acorn is strategic… we can get the capital and buy land banks while Acorn has the development capabilities,” said Gladys Karuri, the group finance and strategy director at Britam.

She said while having a stake in the whole property development chain presents opportunities, it also carries risks.