Nairobi ranked cheapest Africa city to construct in
The cost of construction per square metre has fallen sharply in Nairobi compared to other African cities due to a sluggish real estate market which is still smarting from Covid-19 shocks, a new survey shows.
Latest International Construction Market Survey released by property firm Turner and Townsend, however says that contractor margins remain high.
It is cheaper to construct real estate projects in Nairobi compared to Kampala, Rwanda and Johannesburg, according to the survey.
“Construction expenditure into new projects is still subdued, leaving a surplus of construction workers competing for fewer projects,” says Neill Bulen global MD Turner and Townsend real estate.
The report which is focused on the highend of the market says the lower segment of the sector has been underserved and will continue to be attractive to investors in the short and medium term.
It says the average per square metre cost of building either offices in Central Business District (CBD), a warehouse, hotel or a mall in Nairobi is $540 (Sh59,868.50) compared to $811 (Sh89,913.62) in Kampala and $914 (Sh101,332.99) in Kigali per square metre.
The Kenyan real estate market had suffered from oversupply of high-end projects and heavy borrowing even before Covid-19 outbreak hence leading to a delay in recovery of the sector at a time when other markets are recovering.
Lower construction costs mean that investors can recoup higher margins on their investment.
However, level of demand will determine the final investment decision. For instance, the building costs per square metre of internal area for CBD highrise offices in Nairobi average at $910 compared to $1,155 for Johannesburg.
For highrise apartments, a square metre of internal area costs $637 in Nairobi compared to $939 in Johannesburg.
Coronavirus disrupted construction markets in Africa more than elsewhere, leaving most markets running lukewarm or cold, and many observers expect the continent to take at least two years to return to pre-pandemic levels of output.
Meanwhile, the cold markets in Harare (Zimbabwe), Gaborone (Botswana) and Nairobi (Kenya) look set to cool further,” the survey predicted.
However, the more buoyant countries of those surveyed, Kigali (Rwanda), Kampala (Uganda), and Lagos (Nigeria), expect to gain momentum, particularly Rwanda.
There are three markets that are currently “cold” and might cool down further.
These are Gaborone, Harare and Nairobi, and are all in Africa, according to the report.
“Despite that, Nairobi still has a contractor margin of 15 per cent compared to 8 per cent for Kampala and five per cent for Johannesburg. Lagos contractors are taking home 25 per cent,” it adds.
The cost of construction materials is, however, high in Nairobi with concrete, plasterboard and copper cables retailing higher than in Johannesburg.
The most expensive places to build in the world are Tokyo, Hong Kong, San Francisco and New York City.
A challenge facing the real estate sector in Kenya, according to the survey, is the scarcity of land coupled with high cost, which has led to increased development of multi-unit buildings, hence more utilisation of the vertical space.