he COVID-19 pandemic has put into sharp focus the expanded skill set now necessary for real estate success. To reach fruition, real estate projects now require advanced financial acumen and support as illustrated by Kenya’s innovative venture into the student housing market earlier on in the year.
Student housing has emerged as one of the strongest investment cases in East African real estate over the last two years. According to Kenya’s Ministry of Education, 919,400 students were last year enrolled at the country’s 67 universities and vocational colleges. Yet student housing provided by universities stands at approximately 200,000 units countrywide, serving just 22.6% of the student population, while 10% commute from their homes.
The underserved gap in student housing is most severe in Nairobi, which hosts the majority of the country’s major universities, including Kenyatta University (KU), University of Nairobi and Jomo Kenyatta University of Agriculture and Technology (JKUAT), as well as some of its best private universities, such as United States International University and Strathmore University. Overall, the city accounts for 43.1% of the country’s total student enrolment.
For developers moving to serve this missing segment, the yields are among the strongest currently available in real estate, with student accommodation normally offering individual rooms around shared facilities, and thus generating multiple rental streams per shared unit. The result is a yield of around 7% a year, compared with around 5% for normal residential accommodation.
This has seen multiple private investors entry into the market segment, among them Acorn Group, Questworks, Century Developments Ltd/Kuramo, and the Kenya Defence Forces Old Comrades Association (Defoca), who cumulatively plan to deliver 60,800 student units in the Nairobi Metropolitan Area over the next five years.
With most of these developments still in predevelopment face, the timing of the current higher institutions of learning has been unfortunate for students housing developers coming early in the revenue curve
However, for the more than 2,000 completed units, the annual return is expected to take a hit as universities closed abruptly in March with reopening dates scheduled for January 2021. Ongoing developments have also slowed down due to the supply chain disruptions and public transport restrictions.
As the sector’s most attractive segment currently, student housing has attracted some of its most modern and agile investors, among them Acorn Group, which is the country’s largest student housing developer and which currently dominates the sector’s investment plans by market share.