Growing land demand for commercial development ups land prices by 2 per cent

Land demand for commercial development in Nairobi is on the rise, a trend that has seen the average land price for an acre piece of land go up by 1.8 per cent in three months to June this year.

According to the latest Q2 land price index by real estate firm HassConsult, the growth in the quarter was higher compared to the 1.3 per cent reported in the previous quarter.

The growth was partly driven by a resurgent Upper Hill where the cost of an acre grew by 3.9 per cent, the fastest quarterly price jump in a decade for the area

Sakina Hassanali, the head of development consulting and research at HassConsult, said the resurgence of land price in Upper Hill, which posted its fastest quarterly gain since the fourth quarter of 2014, underpins the uptake of remaining current grade A office space formerly oversupplied.

"Upper Hill's recent positioning for successful residential real estate is a further reason for the resurgence of land prices in the area," she said.

The average land in Upper Hill hit its peak of Sh560 million in June 2018, signalling room for valuation gains as demand for commercial and residential real estate in the area gains traction.

Notably, land prices in Juja grew at the fastest pace among Nairobi's suburbs and satellite towns in the one-year period to June this year.

The cost of an acre in Juja rose by 20.1 per cent in the 12-month period to Sh21.7 million.

The satellite category is made up of 14 towns namely Athi River, Juja, Kiambu, Kiserian, Kitengela, Limuru, Ongata Rongai, Ruaka, Ruiru, Syokimau, Thika and Tigoni.

On the other hand, the City's 18 suburbs include Gigiri, Karen, Kileleshwa, Kilimani, Kitisuru, Langata, Lavington, Loresho, Muthaiga, Muthangari, Nyari, Parklands, Ridgeways, Riverside, Runda, Spring Valley, Upperhill and Westlands.

Generally in the satellite towns, the average price per acre rose by 2.2 per cent in the quarter under review, down from 3.03 per cent in the first quarter as some of the price growth hotspots showed signs of cooling down.

The increase in the cost of credit and that of building inputs, according to the firm, has negatively affected real returns for developers, limiting the propensity to absorb higher land costs in areas with lower purchasing power.

Ngong and Ongata Rongai, which have had some of the fastest-growing land prices over the last three years, were eclipsed by gains in Ruiru, Syokimau and Limuru in the quarter.

Ongata Rongai was the only one of Nairobi's 14 satellite towns to report a fall in land prices in the second quarter, at negative 2.6 per cent.

"Land pricing in Ongata Rongai and Ngong saw a reversal of fortunes in the last quarter, a signal that the bullish pricing in the previous year is starting to level out," Hassanali said.