How tourists are fuelling a new construction boom in Nairobi

Serviced apartments in Kenya are outperforming hotels.
Serviced apartments are outperforming hotels in terms of returns. PHOTO/FILE
As business executives continue to face pressure to optimise their overseas travel budgets, and make savings, many officials are choosing to stay at serviced apartments as a less expensive accommodation option.

Budget travellers mainly those with families are also capitalising on serviced apartments in Nairobi – piling more pressure on the few high quality serviced apartments available in the Kenyan capital.

This trend is sparking a new construction boom in prime locations across the city as investors race to meet the rising demand for non-hotel accommodation among business travellers.

Dozens of giant cranes can now be seen towering over construction sites in several suburbs of Nairobi, where wealthy developers are putting up new serviced apartments.

Kilimani is just but one of the several suburbs where these developments are taking place. Here, a group of wealthy Chinese investors are busy putting up 11-floors of apartments that are targeting business executives and leisure tourists coming to Nairobi.

READ: High-rise rush as Kenya market shifts to multi-unit housing

The Sh1.8 billion property that will be known as Soho Apartments has been under construction since April last year and it will be available for tenancy to NGOs, embassy staff and multinational workers visiting Kenya for periods of between three and 12 months.

Still in Kilimani, Mifta Holdings Limited is preparing to launch construction of Sh1 billion serviced apartments targeting tourists and multinational workers staying in the country for durations of between three and six months.

Nairobi services apartments
Nairobi will need at least 1,000 serviced apartments in the next three years. PHOTO/FILE

Dubbed Nine Oak, the 15-storey building offers a combination of studios, one- and two-bedroom apartments spread on a 0.375-acre plot on Wood Avenue, within easy access from Argwings Kodhek Road and Chania Avenue.

According to Mifta Holdings managing director Abdisalam Abdullahi, Kilimani is an ideal location for the project since the estate has “perfect proximity to the working districts of the Upper Hill and the Nairobi CBD”, yet it maintains its status as a residential suburb with shopping, medical and entertainment amenities.

“We are targeting tourists and expatriates who have relocated into the country and are looking for flexible accommodation, which offers a home-away-from-home experience for the duration of their stay,” Mr Abdullahi told journalists in Nairobi last month.

Britam Properties
The neighbourhood is set to host a similar development, which is being undertaken by Britam Properties, a subsidiary of Britam.

The development, which is expected to cost Sh3.3 billion, comprises 117 two-bedroom and 46 one-bedroom apartments.
The project is located on a 1.6 acre piece of land on Nyangumi Road in Kilimani and is earmarked for completion in 2020.

Britam managing director Benson Wairegi said the company’s decision to venture into property is part of its diversification strategy meant to lower portfolio risk and exposure to the stock market.

Mr Wairegi noted that there was a huge demand for serviced apartment in Nairobi yet the supply of the facilities remains quite low.

“The market will need at least 1,000 serviced apartments in the next three years and Britam Properties will help in bridging this gap,” he told guests who attended the project’s ground breaking ceremony last month.

At Sh12,000 to Sh20,000 for a two-bedroom unit and Sh8,000 to Sh12,000 for a one-bedroom unit a night, the development looks quite promising for the company considering that Nairobi is positioning itself as the regional financial hub.

Britam has also announced that it will set up a Sh12 billion mixed-use project in Kileleshwa, Nairobi, which will include offices, serviced apartments and a hotel.

READ: Britam bets Sh12bn on Nairobi mall despite glut fears

Soho, Nine Oak and Britam’s upcoming apartments will boast the number of serviced apartments in the neighbourhood – sparking stiff competition for clients among the existing accommodation facilities.

Kilimani is set to have approximately 300 newly built serviced apartments this year with the Ole Dume section boasting the bulk of top quality facilities.

A recent study found that there are 14 high quality serviced apartments in Kilimani and Upperhill that are not internationally branded, thereby creating a gap for newcomers to seek a niche locally by affiliating themselves to internationally known brands.

Late last year, global hospitality operator Best Western Hotels & Resorts opened its first African high-end serviced apartments in Westlands, Nairobi, targeting tycoons.

The one- and two-bedroomed property on Riverside Drive provides long and short-term visitors with 48 non-smoking apartments that include a modern kitchen, dining room, living room, high speed Internet access, flat screen television sets, work desk area and daily housekeeping services.

Fully furnished apartments in Nairobi.
Serviced apartments are a more affordable choice compared to short-term hotel stays. PHOTO/FILE

Developed by Fedha Group, the five-storey facility is sparking a tough battle for customers given that the global hotel chain recommends its own facility to travellers from across the 100 countries where it runs 4,100 outlets.

This comes in the wake of revelations that serviced apartments are outperforming hotels both in terms of occupancy and returns.

According to a report that was released by Cytonn Investments in October last year, the average occupancy for serviced apartments in 2016 stood at 90 per cent and the average revenue per room per night was Sh12,700.

This level was 29.6 per cent higher than that of hotels and the facilities were 33.5 per cent cheaper than an average hotel room.

According to the report, Upper Hill is the best performing market with average revenue per room at Sh14,192 per night and facilities in the area have the highest occupancy in the area at 97 per cent.

The Nairobi CBD has the lowest total revenue per available room at Sh8, 616, mainly due to the fact that most of the facilities in the city centre are quite out-dated.

Serviced apartments, commonly known as fully furnished apartments, are a more affordable choice compared to short-term hotel stays and a more convenient alternative to long-term rentals.

They are quite popular in the developed economies especially in North America, which accounts for 61 per cent of the world’s serviced apartments; Europe at 17 per cent; Australia at 11 per cent and Asia at 5.5 per cent.

Although Africa is far from joining the big boys of the sector, there is a growing demand for serviced apartments especially in countries such as South Africa, and Kenya, whose capital cities are being positioned as regional business hubs.