This document provides an economic report on Nairobi, Kenya in April 2016. It summarizes key economic indicators including GDP growth of 5.4% and inflation of 6.8%. It also summarizes real estate market conditions, including 340,000 square meters of office stock renting between $11-18 per square meter per month, 259,000 square meters of retail space renting between $6-10 per square meter for anchors and $12-55 per square meter for retailers. In hotels, there are 14 international brands with an average room rate of $143. The report notes both opportunities and challenges across real estate sectors in Nairobi.

1. April 2016
Kenya
Nairobi City Report

2. GDP Forecast
2016
5.4%
Kenya Bank
Lending Rate
18.3%
Government Bond
(10 year)
14.07%
Real Estate
Transparency
55/102*
Inflation
6.8%
April 2016
Nairobi City Report
*Top Global Improver, JLL Global Real Estate Transparency Index 2014
Offices
Circa 340,000m2
total grade A office stock
US$11-18/m2
/month
for Grade A Buildings
Retail
259,000m2
gross lettable area
US$6-10/m2
/month
anchor rent
US$12-55/m2
/month
line store rent
Hotel
14 international-graded hotels
US$143
average rate
Rental
growth
slowing
Rental
growth
accelerating
Rents
falling
Rents
bottoming
out
Offices
Hotels
JLL Property Clock
Retail
The JLL Property ClockSM
Market Overview
Economy
Kenya achieved one of the African continent’s highest year-on-year GDP growth
results at 5.8% for 2015. It also became the fifth largest economy in Sub-Saharan
Africa after it revised its GDP at the end of 2014. Kenya, and in particular Nairobi,
has headlined the East African region as its gateway and preferred destination for the
regional headquarters of at least 100 multinationals and corporations.
Unlike many of its commodity-dependent counterparts in West and Central Africa,
Kenya is a resource-poor country with GDP well diversified across its agricultural,
tourism, construction, retail and telecommunication sectors. This diversification has
protected the economy against the negative risk impacts of the fall in global oil prices
that began in 2014.
The Nairobi Stock Exchange (NSE), the second oldest on the continent, is Africa’s
fourth largest exchange in terms of trading volume, capable of making 10 million
trades a day.
Infrastructure
In the past, little effort was made by the national goverment in terms of infrastructure
and service development to accommodate the influx of people migrating from
rural parts of the country to Nairobi. Previous underinvestment in infrastructure
development has meant significant dilapidation of the road network – potholes, gravel
city roads and narrow lanes have resulted in Nairobi being one of the worst traffic
cities in Africa.
In light of these challenges, the government has responded to growing infrastructure
demands by launching the development plan section of ‘Vision 2030’ which addresses
two key issues. The first is to improve the physical infrastructure of urban cities, and
the second is to direct growth away from Nairobi to create decentralised nodes well
apart from the congested CBD. Locally this is referred to as the creation of ‘satellite
cities’.
The development of a new superhighway, Thika Road, now links the city of Nairobi to
the north-east area of Thika, and this has been the catalyst for property developments
such as Garden City and Thika Road Mall, as the road provides easy access and good
visibility for commuters visiting these centres. Further projects will focus on creating
ring roads around the city which, in time, will alleviate Nairobi’s inner-city congestion.
Supporting the improved road network are a proposed metro rail network and the
development of a blueprint for a Mass Bus Rapid Transit System.
Source: Trading Economics, Oxford Economics, JLL
Real Estate Dashboard

3. Real Estate
On the real estate front, Kenya, and specifically Nairobi, is experiencing an
unprecedented development boom across all its commercial sectors. The
resilience in the property market, thus far, has been underpinned by strong
economic growth, stable inflation and the country’s aspiration of becoming a
majority middle-income market.
Limited availability of land is causing property prices to rapidly rise. Areas along
major arterial routes and in Nairobi’s satellite cities, like Thika and Ngong Road,
have reported land value appreciation of 100% and 200% respectively from 2007
to 2014.
Increased supply in the office and retail sectors has redefined the Nairobi skyline,
although some skepticism exists around the relative demand for all the new stock
coming onto the market.
Activity in the industrial space has been limited to owner-occupied developments
located south-east of the CBD that comprise old, inefficient quasi warehouse/
office type structures. With the government making strong advances in its
infrastructure projects, developers are now exploring light industrial parks along
Mombasa Road towards Jomo Kenyatta International Airport.
Investor Sentiment
Investor sentiment remains strong, with
commercial activity concentrated around
very specific nodes such as Westlands,
Upper Hill and the decentralised areas
around Thika Road and Gigiri.
To ensure sustained investment, Nairobi
will need to embrace much more
transparent real estate practices. As the
majority of the commercial real estate and
hotel property is held privately, access
to information on market tracking, rents,
vacancy performance measurement and
transaction data is currently difficult to
obtain.
While REIT (Real Estate Investment
Trusts) legislation is in place, only two
REIT companies will be trading on the
Nairobi Stock Exchange by the end of the
year, namely the STANLIB Fahari i-REIT
which listed at the end of 2015 and Fusion
Capital’s D-REIT, the listing of which is
anticipated in the third quarter of this year.
In the long run, investors will be able to
buy shares in listed property companies
based on the quality of properties, with
steady income growth on the underlying
assets. However, in the short term,
transactions in this space remain limited
and the small market cap size of these
counters does constrain liquidity.
International developers and private equity
funds with short-term investment horizons
are looking to sell recently completed
investment-grade assets, and these
potentially unlisted transactions will set a
precedent of asset pricing transparency
based on property fundamentals.
“Increased supply in the office
and retail sectors has redefined
the Nairobi skyline, although
some skepticism exists around the
relative demand for all the new
stock coming onto the market.”
By the end of the current development cycle, Nairobi will have an
accumulated commercial stock of:
400,000m2
of retail space,
including three
modern international-
standard shopping
centres.
Almost
620,000m2
of total gross lettable
office space - an 80%
increase on current A
and Prime grade stock
levels.
Circa
10,700
rooms across
79 hotels.
(45 rooms or more
per hotel)

4. MIN MED MAX
Gigiri
Grade P 18.3 21.0 23.1
Grade A 15.8 15.8 15.8
Karen
Grade A 11.2 13.0 14.7
Kilimani
Grade A 11.7 11.7 11.7
Thika Road
Grade A 7.9 7.9 7.9
Upperhill
Grade A 12.0 12.0 12.0
Waiyaki Way
Grade A 11.8 12.1 12.4
Westlands
Grade A 15.5 16.1 16.6
Offices
Total A and Prime
grade office stock
340,000m2
Rent
US$11-18/m²/
month
Overview
On the office front, the large supply of A and, in some instances, Prime grade
space in Westlands and Gigiri offers multinational companies more options
to choose from when selecting ideal premises to headquarter their regional
operations. We expect to see more tenants upgrading to A grade space from
B and C grade accommodation, leaving large vacancies in those sectors.
Traditionally, commercial rents have been paid in Kenyan shillings, however
there is a trend towards US dollar denominated leases for new office
developments, introduced in order to obtain preferential debt financing terms.
The result of this trend is as yet unknown, but currency risks may arise for
occupiers who have to manage shilling revenue income vs. US dollar rental
expenses.
The CBD remains home to mainly government offices; however, the quality
of offices in the area has declined due to inadequate parking ratios and
ongoing traffic congestion. The decision of international tenants to relocate
out of the CBD may well present a good opportunity to embark on an inner-
city regeneration to reposition the area.
Rental Performance
Developers may need to be wary of the excessive office
supply that will lead to a downward correction in office
rents. Current A grade rental space is quoted between
US$11-18/m2
/month, but it is anticipated that that there
will be pressure on rental levels in the short to medium
term. Office landlords, in general, will need to compete
for tenants by offering discounted rentals, while premier
office locations may need to offer additional incentives
such as rent-free periods and tenant installation
allowances. Service charges or operating costs range
from US$2 to US$3/m2
/month.
Table 1: Average US$ rental/m2
/month
$
“The decision of
international tenants to
relocate out of the CBD
may well present a good
opportunity to embark on
an inner-city regeneration
to reposition the area.”

5. Demand
Most multinationals who have entered the Nairobi
market have established their medium-term space
requirements. Pre-lets on office developments in
Nairobi are non-existent, and tenants only take
up occupancy once a development is complete.
The current wave of speculative development was
initiated on the anticipated growth emanating from
the oil and gas sector and on more multinationals
entering the market. Amid the gloomy outlook on the
commodity sector, oil companies like Tullow Oil have
reconsolidated and even reduced their office space.
We see opportunity in two distinct areas of demand
in Nairobi. The first being A grade single-tenanted
office buildings in prime locations such as Westlands
and Thika Road for large corporations looking to
consolidate their dispersed offices into one prime
location asset with building naming rights. The second
is within the full-service offices sector; a product
that Regus and ESBC offer. The full-service offices
option gives companies the advantage of entering
the market or operating a satellite office without the
burden of huge office capital fit-out costs or the need
to commit to lengthy five-year lease terms which local
legislation dictates.
Figure 1: Nairobi Office Pipeline (m2
)
Westlands Upperhill Parklands Kilimani Gigiri
2017 20182016
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0,000
Supply
With the rapid rate of office development, Nairobi may well be oversupplied in
the office sector. At least 160,000m² of space is expected to be delivered to the
market in 2016 alone, mainly in the Upper Hill and Westlands nodes. Westlands
remains attractive to many corporations while Upper Hill looks set to experience
vacancies in excess of 40% for the next 6 to 12 months.
Offices

6. Supply
Garden City Mall, completed at the end of 2015, is
now Nairobi’s largest mall at 35,000m². Developed
by Actis, the mall is part of the first mixed-use
scheme in Kenya that also includes a residential
component with further developments underway
which will add offices and a hotel. More recently,
The Hub, a 29,000m² mall in Karen developed by
Azalea Holdings, was delivered to shoppers in the
first quarter of 2016.
Future mall developments in the pipeline include
the much anticipated 62,000m² Two Rivers,
Rosslyn Riviera, an 11,000m2 neighbourhood
centre, and a 21,000m² expansion of Village
Market. These malls are all concentrated in the
same area of Gigiri/Rosslyn. While these malls do
cater for different consumer markets, their similar
catchment area means that a cannibalisation of
market share is imminent.
DEVELOPMENT APPROXIMATE SIZE (m2
) NODE YEAR OF COMPLETION
Crystal Rivers Mall 20,000 Athi River 2017
Rosslyn Riviera 10,776 Rosslyn 2016
Southfield Mall 13,657 Embakasi 2017
Two Rivers 62,000 Gigiri/ Limuru Road 2016
Village Market (Phase 2) 21,000 Gigiri 2016
Total 127,434
Overview
Kenya has the second highest formal
retail market penetration rate in Sub-
Saharan Africa of circa 30%-40%.
The expansion of the retail sector
in Nairobi has been driven by the
redevelopment of existing centres
and development of Greenfield
sites by a combination of local and
international developers.
The retail market is currently
dominated by four major anchor
players, namely Nakumatt, Tuskys,
Navas and Uchumi. These stores,
and in particular Nakumatt, have high
proportions of clothing, hardware
and general merchandise making
them ‘one-stop shops’ for consumers.
Consumers are aspirational but also
very value conscious, so any new
retail offering has to address their
personal needs and taste.
International brands have recently
started trading in Nairobi, namely
French multinational Carrefour,
Game and the American fast-food
chain Domino’s. These retailers
need to have a competitive edge
to succeed in a market with an
already impressive local offering.
The performance and experiences of
these new entrants will be watched
closely by other foreign retailers who
have Kenya on their radars.
Rental Performance
The attraction of international retailers
to the market and the improving
quality of retail stock has allowed
landlords to quote substantially higher
rents. Average base rental levels
for anchor tenants range between
US$6-10/m2/month, while asking
rents for line stores are anywhere
from US$12 to US$55/m2/month
with levels being determined by the
individual store category and size.
Escalations are around 7.5%-10% for
leases denominated in shillings, while
US dollar rents escalate at around
3%-4%.
Current vacancies across the market
remain on average below 5% with
older malls expected to maintain low
vacancies, while newer, larger retail
malls will see higher vacancies until
trading matures and tenant demand
for these centres increases.
Demand
Demand remains steady for retail
space. The influx of international
retailers, such as Carrefour, Game
and MAC Cosmetics, has widened
the offer to consumers allowing new
shopping centres to increase their
footprints.
Retail
Pipeline
City
Population
3,950,000
Gross lettable
area
259,000m2
Anchor rent
US$6-10/
m2
/month
GDP
per capita
US$649
Line store rent
US$12-55/
m2
/month

7. RECENT OPENINGS
Radisson Blu Nairobi
256 rooms, opened 2015
Kempinski Villa
200 rooms, opened 2013
Best Western Premier
96 rooms, opened 2012
Crowne Plaza
762 rooms, opened 2010
PIPELINE
Tune Hotel Nairobi
280 rooms, due 2016
Hilton Garden Inn JKIA
171 rooms, due 2016
Golden Tulip Grand Sapphire
196 rooms, due 2016
Pullman Nairobi Westlands
320 rooms, due 2016
The capital of the world’s Safari haven and home to the headquarters of numerous multinationals and major NGOs, Nairobi
continues to be an important gateway city to the high-growth East Africa region. As the flag carrier, Kenya Airways is
expanding its route network and swiftly gaining recognition as one of the continent’s leading airlines. Aside from business
and conference tourism, Nairobi benefits from being the major entry point for leisure travellers coming to the celebrated
parks of East Africa and its coastline. With a reduction in terrorism woes, continued stability and anticipated regional
economic growth, Nairobi is seeing a significant number of new hotels being developed. As this pipeline comes online over
the next 12-36 months, it will likely result in a short-term oversupply.
Tourism
Kenya has both leisure and business tourism appeal through
its diverse offering and regional importance. However, during
the first half of 2015 arrivals were down 19%, due primarily to
security concerns.
Demand
Jomo Kenyatta International Airport (JKIA) received 672,789
international arrivals in 2015. Kenya Airways flies to 65
destinations and is an important regional carrier.
Supply
Current hotel supply in Nairobi is estimated to be more than
170 hotels with a total of c.10,000 rooms. With the recent and
continued focus of global brands entering the market, the
number of branded rooms is beginning to form a considerable
portion of this.
Investment
Nairobi has seen high-quality new supply enter the market
during the past five years, including the Kempinski Villa Rosa,
Crowne Plaza, Radisson Blu and Best Western Premier.
Funding for hotels is primarily through local promoters with
wide interests across numerous economic sectors. Short-term
investment returns are likely to be impacted by an oversupply.
A reduction in security concerns in Kenya would have a
significant positive impact on demand for hotels in Nairobi,
boosting investor sentiment in the city.
Outlook
The pipeline of new hotels is sizeable despite the extended
development periods. Tourism centric hotels have decreased
rates noticeably in response to weaker demand from the more
fickle leisure segment. However, the hotel sector continues to
flourish and attract new local and foreign investors. There is
a risk of short-term oversupply in the market, which is relying
on regional economic growth to increase demand. In addition
to Upper Hill and Westlands, the airport precinct will see high
supply growth. There is likely to be a slowdown on all fronts
from the latter part of 2016 through to the 2017 elections.
However, Nairobi still presents investors with a gateway into
the region and should form part of any Sub-Saharan Africa
investment strategy.
International
Arrivals in 2015
749,000
q-12.7%
Average rate
US$ 143
q-0.5%
Occupancy
53.8%
q-1.1%
RevPAR
US$ 77
q-1.6%
$ $
Hotel
pq % change compared to prior year

8. Southern Bypass
SouthernBypass
KamitiRd
A 104
A2
A 104
A 104
Langata Rd
Killimani
Karen
Upper Hill
Jkia
Walyaki Way
Gigiri
Westlands
ABC Place
GLA 10 513m2
Village Market
GLA 19 509m2
Yaya Centre
GLA 13 489m2
Galleria Mall
GLA 15 000m2
Greenspan
GLA 13 489m2
Westgate
GLA 33 000m2
The Hub
GLA 29 000m2
Garden City
GLA 34 828m2
Thika Road Mall
GLA 26 477m2
Sarit Centre
GLA 25 000m2
The Junction
GLA 26 000m2
Karen
Gigiri
Thika Road
Commercial nodes
GLA m2
KEY
>80,00040-80,0000-40,000
A grade office nodes:
Gigiri
Karen
Kilimani
Thika Road
Upper Hill
Waiyaki Way
Westlands
Retail:
Existing Malls
Pipeline Malls

9. Ewout Holst
Director
Corporate Solutions
Sub-Saharan Africa
tel: +27 11 507 2200
ewout.holst@eu.jll.com
Lucy Githinji
Associate Director
Corporate Solutions
East Africa
tel +254 730 112 024
lucy.githinji@eu.jll.com
Mark Dunford
Vice President
Hotels & Hospitality Group
Sub-Saharan Africa
tel: +254 0 730 112 024
mark.dunford@eu.jll.com
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. This report has been prepared solely for information purposes and does not
necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources
we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report
is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice.
Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially
different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views
expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.
Craig Hean
Managing Director
Sub Saharan Africa
tel: +27 71 860 7926
craig.hean@eu.jll.com
Xander Nijnens
Senior Vice President
Hotels & Hospitality Group
Sub-Saharan Africa
tel: +27 11 507 2200
xander.nijnens@eu.jll.com
Anthony Lewis
Director
Capital Markets
Sub-Saharan Africa
tel: +27 71 860 7926
anthony.lewis@eu.jll.com
Fadheelat Noor Mohamed
Associate
Research
Sub-Saharan Africa
tel +27 11 507 2200
fadheelat.mohamed@eu.jll.com
JLL Kenya:
Contact us
JLL Sub-Saharan Africa:
www.africa.jll.com