For years, Kenya's residential rental market has offered steady returns for landlords. Rents in Nairobi, Mombasa, and other urban centers climbed with demand, even amid economic disruptions like COVID-19 and the global inflanation wave. But cracks are beginning to show.
Rents are still growing in many areas, but far more slowly. In Nairobi, rental prices remained flat in 2024, with a marginal change of -0.02 percent, according to the HassConsilt Q4 2024 Property Index. Some tenants are negotiating lower prices or holding out for better deals as supply rises and incomes become stagnate. Meanwhile, satellite towns like Kitengela, Ruiru and Syokimau are witnessing a rush of development that could soon outpace demand.
What's changing?
Kenya's real estate market is being hit by a mix of factors:
- High inflation has eroded tenant purchasing power.
- Uncertain economic policy is making investors cautious.
- Stalled wage growth, particularly in the middle income bracket, is affecting tenants' ability to absorb rent increases
- New supply, especially of mid to high-end apartments is putting pressure on pricing.
According to Mwakilishi "Experts anticipate that by 2025, the demand for rental properties will continue to rise, yet tenants are expected to become more selective in their choices."
Landlords who have long relied on rent increases to drive profitability are now focusing on something else: tenant retention.
''A vacant unit is more expensive than a paying tenant,'' says Josephine Wanjiku, a Nairobi based property consultant. ''With repair costs, agency fees, and turnover losses, many landlords are finding it cheaper to keep the tenant they already have.'' (Mwakilishi)
Urban Exodus? Not Quite. But Surbabs Are IT!
With remote work more accepted than ever, some tenants are moving further out of city centers to get more space for less money. This has made surbabs more attractive for landlords especially where infrastructure (like the expressway or railway) is improving.
But experts warn that expanding too far too fast could backfire.
''You might find land for cheap in Isinya or Kamulu,'' says Wanjiu, ''But with no guaranteed demand, no infrastructure, and little enforcement of lease agreements, the risk is real.'' (Mwakilishi)
Middle Income Rentals Hold the Most Promise
Like in other maturing markets, the luxury segment in Kenya has seen the most construction. But many of those units sit empty or are being let out at heavy discounts. A report by Masterways reveals that andlords in areas such as Runda, Karen and Gigiri are seeing reduced rental income and higher vacancy due to a ''notable decline in the numeber of foreign tenants.''
The sweet spot right now is mid-range housing, especial;ly in areas with strong infreastructure and proximity to job centers. Think South B, Lang'ata, Ruaka and Thika Road. These are attracting professionals who want affordability without compromising too much on quality life.
What should landlords be doing now?
With rising maintenance costs and uncertains returns, more landlords are delaying renovations and new construction. But this appproach can backfire if it leads to deteriorating properties.
Instead, many properties are now:
- Investing in low-cost improvements like water shortage, better security and digital rent payment options
- Offering loyalty discounts or flexible payment plans to retain tenants.
- Prioritizing relaible agents or tech systems to improve rent collection and minimize disputes.
What Lies Ahead
For now, the message to landlords is simple: don't rely on old assumtions. This is a new phase of Kenya's residential rental economy, less about growth at all costs, and more about sustainability, tenant experience and smarter investment.
In a market that's no longer guaranteed to grow, your best bet is to grow smarter.
In a market that's no longer guaranteed to grow, your best bet is to grow smarter.
