Nairobi Real Estate Moment: 2021

  • The Nairobi Expressway construction that will span from the Jomo Kenyatta International Airport to Westlands, has reached downtown Nairobi and is causing disruptions to real estate and traffic .. some changes to retail include..

  • Changes to Malls – many of which are largely idle above the first floor. Quite a bit of foot traffic there is from bank customers visiting their branches which have now been relocated to the third and fourth floors of Nairobi malls.

Other real estate stories.

  • An EFG Hermes report on Nairobi real estate found the demand for affordable houses has a disconnect that has seen prices are softening in Nairobi – at high-end residential (-27% below 2017 peak), and commercial properties (-13% off-peak). Also, the tough Nairobi office market is very visible (vacancy rates of 22% compared to 9% in 2011) with exposure to some financing banks including KCB and Housing Finance.
  • Orbit Group and Grit Group have partnered on a 25-year $53.6 million sale & leaseback transaction for a light industrial (warehouse and manufacturing) property on Mombasa Road, supported with a $25 million loan from the IFC. Orbit Products Africa, controlled by the Sachen Chandaria family, is a leading contract manufacturer for brands in personal care and home care products and its clients include Reckitt Benckiser, Unilever, Colgate and Henkel. They will expand the plant by an additional 14,741 m2 warehouse space and improve it to modern FMCG industry standards to achieve an IFC EDGE green building certification on completion. As part of the deal, $31.5 million will be a “perpetual note”, raised from Ethos Mezzanine Partners GP and BluePeak Private Capital and additional proceeds from this will be invested in the St Helene Private Hospital in Mauritius, an idea that was conceived by Catalyst Principal Partners. Grit Real Estate Income Group is listed in London and Mauritius 
  • A Knight Frank report, the “Africa Logistics Review” finds that Nairobi had the best real estate market between 2018 and 2021 for prime warehousing and logistics.  “Nairobi recorded the highest increase in average prime rents across Africa, from USD 4.70 psm in 2018 to USD 6 psm ” – and developers have grown over 170,000 square meters in the last five years. Kenya has the highest concentration of special economic zones (SEZ) in Africa (61 of the 180 SEZ’s). The country is also making good progress to grade A warehousing and in growing a real estate investment trust (REIT) ecosystem.  Also because of high land values in Nairobi, developers have sought towns/areas beyond traditional industrial hotspots Read more.
  • Speaking of REITs .. Acorn Project (Two) LLP, the Issuer of the Acorn Medium-Term Green Note (MTN) Program, closed the final tranche on 16th July 2021, raising Kshs 2.096 billion against the target of Kshs 1.438 billion representing a subscription rate of 146%.  As part of this transaction, the Acorn green bond was converted into the Acorn Student Accommodation Development REIT (ASA D-REIT). Read more.
  • The Architectural Association Of Kenya reported on development challenges within the Nairobi metropolitan area. A decade after an electronic construction-permitting system covering Nairobi, Mombasa, Kiambu, Machakos, Kisumu, Kajiado and Kilifi was deployed with the support of the World Bank Group, it is plagued by frequent disruptions and system downtime. In Nairobi, the system has not been operational for more than three months of 2021 and in a survey of AAK members, 46.7% of the respondents indicated that they had to wait for over 6 months for their applications to be processed or granted approval.
  • Kenya’s Lands Ministry is doing a digitization of title deeds through a National Land Information System (NLIMS), referred to as ArdhiSasa with a goal to have all land records digitized by the end of 2022.  The Lands Cabinet Secretary indicated that the Ministry has scanned and digitized 30 million documents in Nairobi.
  • A Cytonn Real Estate report on properties in the years 2020 found that “residential units in Thindigua, Syokimau and Rosslyn recorded the highest returns to investors and land asking prices recorded an overall annualized capital appreciation of 2.3%.” According to the report, Gigiri was the best performing office node in FY’2020, followed by Westlands and Karen, In the retail sector, Westlands and Karen were the best performing nodes while in hospitality, Westlands-Parklands was the best performing node. Read more in the report.
  • Cytonn is now doing a restructuring and has applied to wind down two funds – the Cytonn High Yield Solutions LLP and Cytonn Real Estate Project Notes LLP through administration and has invited creditors to submit their debt claims, with proof, to Kereto Marima who is the appointed administrator – by November 29, 2021.
  • Hotels are not doing well with many iconic sites closed or on sale due to Covid-19 and the resultant curfews and travel bans that have affected the flow of tourists into Kenya.
  • Many hotels expect a steady recovery once the curfew is lifted (which happened in October 2021). See a survey of hoteliers by the Central Bank of Kenya.

Some hotels that are gone: Intercontinental and the Nairobi Dusit/ D2 which recovered after the January 2019 terror attacks only to succumb in the Covid-19 aftermath.

Some hotels currently closed: Mt Kenya Safari Club, Norfolk, Radisson Blu.

Some hotels on sale: Outspan, Treetops (should the Queen buy the hotel ahead of her 100th birthday?), Fairview and Country Lodges, Jumuia (Nakuru).  

E-commerce insights from Jumia and Chap Chap Go

Yesterday Jumia released their Africa e-commerce index 2021 with some interesting trends, a  year after Covid-19 impacted lives across the continent.

Sam Chappate CEO Jumia Kenya said that in Africa, e-commerce still has room for growth as currently, it still accounts for just 1% of  transactions, and another 300 million people will be accessing the internet in two years. 75% of traffic to Jumia is on mobile, while it is 85% for Kenya.

  • Gross merchandise value has shifted – from 40% of pre-pandemic sales coming from everyday stuff (FMCG, beauty products) to now 60%. Now, a 2kg sugar bag is the top-selling product on Jumia in Kenya. 
  • NYSE-listed Jumia is in ten countries and Kenya number 2 in searches, behind Nigeria. Top cities in Africa are Lagos, Cairo, Nairobi, Casablanca, Abidjan, Gaza, Abuja and Accra.
  •  With 11,000 sellers and 1,600 pickup stations, Jumia has the biggest logistics infrastructure in Kenya. Coca-Cola is probably bigger but it’s a closed system whereas Jumia has opened their system and logistics infrastructure to third parties/partners (e.g. Premier Foods and Unilever). Small companies can use pickup stations for   FMCG.
  • Sales of Jumia are 51% primary cities, 27% secondary cities, and 22% rural – so 50% outside Tier-I cities. Most deliveries in Kenya are to Nairobi Mombasa and Kiambu.
  • Now big in fintech .. 35% of Jumia orders are paid through Jumia pay which has 4 million downloads – they have now opened Jumia pay to third-party partners, starting in Egypt.

Also, Chap Chap GO, an -e-commerce startup that’s winding down, uncovered some gems from its year of operations in Mukuru and Langata areas trading a limited basket of products. Its founder Soud Hyder, a digital commerce specialist, shared some urban e-commerce insights on Twitter.

  • Fastest moving items were wheat flour (Ajab), cooking oil (Salit), cooking fat (Samli), and then sugar – all needed on a daily basis by Mama Chapos (informal roadside cafes).
  • Ajab Flour was super interesting; it’s very popular with Mama Chapos despite being a relatively newer brand, they cited quality and texture for it being the preferred choice, something to do with the elasticity of the chapos and preferred kneading consistency by the cooks.
  • Samli was a product requested by customers, trialled with a small cohort in Jul-Aug 2020, mostly “Mama Chapo” type of customers.
  • GIL (manufacturer of AjabFlour) has a lower quality fighter brand called Umi, intent was to help them garner market share but turns out the premium brand is more popular even in the lower tier of the market, customers are willing to pay a bit more for quality.
  • The market has already validated the “measure and pour model” (weka ya kupima), unhygienic & inconvenient but the market has found equilibrium, works for both retailers and customers, an additional 3% margin is not bad at all for folks in informal retail
  • .. Mama Chapos ended up becoming our core customers because of on-demand service, fair pricing and convenience. We were not always the cheapest but the convenience aspect really helped them focus on their business.
  • We used a hub and spoke model, had small depots in the neighbourhoods we operated in .. the eventual goal was to partner with existing businesses/retailers that had storage space to spare and delivery capacity.
  • We mostly did two, Fresh Fri (B2C – middle class) and Salit (informal retail/kibandas), our B2C footprint was relatively small, so ended up doing quite a bit on Salit including repacking it in 1L reusable jars, see the cost of packaging easily adds 3-5% to the price.
  • Differences in margin is all about supply and buy planning (basis of commodity trading) and following market prices being set by the bigger suppliers/manufacturers, if they drop you have to drop otherwise you won’t move stock.
  • Flour and oil move every day so it’s a volume game and moving bulky items from depot to customer/market in the most efficient way possible, for those who are able to do it really well e.g. the Eastleigh wholesalers and some of the bigger distributors.
  • So FMCG margins are razor-thin in sub-Saharan Africa, pricing makes or kills a business, so wholesalers and bigger retailers make money from rebates in subsequent months, invest capital to build seed customers and retention, build volume for rebates, qualify for credit .. and build credit lines with manufacturers, that net 15 or 30 or 45-day credit line could easily get sub 10% margin, so not a bad hustle if one has all their ducks lined up, but it’s hard, not the easiest of businesses to run, so many things could go wrong
  • .. which is why you are seeing an influx of new oil and fats brands, if you crack distribution, you can carve out a niche. They call vegetable oil these days “Salad* after the brand Salit.
  • Primarily it’s a quality, price point and availability problem. So more on the distribution side, like milk ATMs, if you can plug a brand on top that and execute, even better
  • Unfortunately, we shut down our FMCG business in Q4-2021 and are formally shutting down @ChapChapGO .. we’ve become another statistic of a fledgling startup but hope the insights and lessons learnt will benefit and inspire others.

Getting Paid for e-commerce in Africa

When it comes to support, from PayPal’s perspective, your value is worthless. PayPal is a terrible company to deal with; they will withhold money for quasi-fraudulent reasons, that have long been suspected to be pools that are linked to high interest-earning fixed deposit accounts or something along that line. When they withhold your money, they are actually playing monopoly with your money, and the reasons are always obscure. Your account will be shut down for even more obscure reasons.

PayPal deleted this tweet

PayPal never points to a specific issue, and since they are a near-monopoly, they are above the law, and you, in a third-world country, can only wait and pray. PayPal can act with impunity and there are no mechanisms for third-world individuals to hold PayPal accountable, and they know this, so it’s not implausible for them to take advantage. They do.

Stripe on the other hand is the king of double standards. When it comes to engagements with Westerners, Stripe is your friend through and through, but the minute you, a third-world resident, control a USA entity, the double standards come out. You can’t do certain things that other Western companies are free to do, and if you have a chargeback as a foreign-held entity, Stripe will hold and eventually shut down your account because it is deemed as high risk, even though you or your company might be a target of fraud.

Again, Stripe takes advantage of the lack of accountability. If you acquire Stripe through a 3rd party like Shopify or Woocommerce, then you will NEVER get your account approved, regardless of however clean and legitimate your paperwork is. They will always say their risk department is assessing your paperwork, and if that goes past 3 months, you will almost certainly give up. They want that. However, the double standard is worse, since Stripe is financing Westerners to come build fintech in Africa (e.g. Wave).

As for Flutterwave, it is a better experience. You are treated like an actual human being. You talk to people who speak your language, understand your problems, help you solve them and treat you like an actual human being. You have an actual telephone number you can use and talk to someone who will actually be concerned and help you overcome your hurdles. Flutterwave makes you feel like you belong, and it might be business at the end of the day, but it’s how it’s supposed to be done. With empathy!

Comment by a company founder who moved to Flutterwave.

Why African firms list at London

“Fundraising via small cap IPO” was the title of a webinar last week, that was hosted by Jonathan Nelson of HF Capital and which featured Gokul Mani and Ope Sule, both of the London Stock Exchange (LSE).

In nine months of 2021, London has had 81 IPO deals that have raised $20 billion. It is one of the top 3 global exchanges after the USA and Hong Kong, but London is the largest international market (of the 2,000 listed firms, 700 are not from the UK), while the others mainly comprise local firms. 

There are 160 African firms on the LSE and these include Airtel Africa,  VivoJumia and Acorn.

Why list at London?

  • Firms will get the right price: With $100 million assets, a company can raise $35-40 million
  • A listing makes it easier to raise more money; when a company is private it can spend 6 months raising money. But once listed on the LSE, it can raise $30-40 million overnight 
  • 30% of LSE firms are listed on 2 or 3 other exchanges.  London partners with Nigeria and South Africa exchanges so if a company lists in London, it doesn’t have to provide too much additional information to list on South Africa with a bit more in Nigeria.  
  • To list at London, a company should be valued at about $50-70 million for the Aim board and $150-200 million for the Main one. 
  • Compare this to the US where a company needs to aim for a $5 billion valuation. If this is lower than $3-4 billion, the US is not for them, but London will give that investor appetite. 
  • London is primarily institutional and by fundraising there, companies are dealing with professional money managers while China is mainly retail (45-50%)  as well as the US (30-45%), London retail is 10-12%.
  • London can value technology firms, unlike (African) local markets – and most of the technology firms raising money this year are loss-making, but the market can still price them.

What firms will need to do? 

  • It costs a lot to raise money in terms of the time to meet investors and do roadshows. 
  • To raise $10-20 million, the fundraising cost is 5-6%, but for a larger target of $100 million, it would be 2.5-3.5%. 
  • Firms are advised to hire a public relations (PR) as well as investor relations (IR) firms that are based in London – spending $200,000 a year for these.

Real Estate Moment: Property Management Tools in Nairobi

Everyone is a member of a housing estate in Nairobi, from Spring Valley to Kibera and other neighbourhoods above and beyond. They all have to deal with things like security, service charges and garbage collection, to others like painting common areas, noise & smoke disturbances and shared parking spaces.

How do residents manage? Often it takes a few keen dedicated people, usually long-term residents in the area, who volunteer their time to marshal and organize the other residents who are largely passengers. They spend a lot of time organizing and resolving matters and chasing and collecting monthly payments from their fellow residents.

What tools can they use to help in these time-consuming and unwelcome but necessary tasks? I put up a query on Twitter and these are the top ones shared back, in no particular order.

  • Verus Africa: Their platform is the only one that is cloud-based and caters for residential as well as commercial real estate management. (Ok. They are also my relatives😂).
  • Try Smartkodi (how it works video here) .. SmartKodi is an all-in-one property management software that does everything from lease management, automated rent invoicing and receipting, utilities tracking and management, a comprehensive accounting system and so much more! Talk to us.
  • We built Gated specifically for estate management.
  • @kodipoint at @tenzilabs we are piloting a similar product.
  • Check out RentPay.
  • Nyumbani – talk to us.
  • Sapama.
  • Check out Safaricom bill manager.
  • Check out Kodisher by @mwangisk (who) can give more details about it.
  • KCB Group have a property management portal as well.