Real Estate: Interview with Ben Woodhams from Knight Frank Kenya

Interview with Ben Woodhams, Managing Director at Knight Frank

What is your assessment of the real estate sector in Kenya at the moment?

If you look at Kenya in a regional context, Nairobi is a regional hub. Therefore, you could say that the property market comprises two tiers: the national market and the regional market. We have clients in Nairobi who run not just their East African businesses from here, but also their Central African businesses. From that point of view, the African continent is run from an axis encompassing Lagos, Nairobi and Johannesburg – which makes Nairobi a good place to be. It’s a large and important regional hub, and has been so for at least the last 15 years. If you go further back than that, you will find that big global corporations have traditionally run Sub-Saharan Africa from Johannesburg, but in the last 15 years, we have seen many of those companies wake up to the fact that there is a population of 150 million people in East Africa, they need regional headquarters here, and I believe this has really been where we have seen most of the growth in the last 15 years.

Knight Frank is headquartered in London and was founded in 1896. In March 1998, Knight Frank Kenya was established. The company is specialized in providing residential and commercial property advisory services. Could you give us an overview of the Knight Frank’s history and main business segments?

With Nairobi being a regional hub, a lot of FDI comes into the city, which means there’s constant demand for new office space in the market.

As you mentioned, Knight Frank Kenya was founded in 1998. It started as a joint venture with a local holding company that had many property assets. They were looking to outsource their property management away from an in-house situation, which gave the limited liability company – Knight Frank in London – the perfect opportunity to launch into Kenya.

This was certainly not our first venture into Africa, as our first offices on the continent were in Nigeria, which opened in the 60s. However, it was among our earliest. From those early days in 1998, we have seen the business grow considerably to a staff of over 150 people. We manage over 5.5 million sq. ft. of commercial property, primarily offices and shopping centres, as well as over 500 residential units.

As international real estate consultants, we do everything that you would expect a firm like ours to do, including valuation, agency work (i.e. the business of keeping the properties that we manage full of tenants, finding buyers for properties, etc.), the management of the buildings themselves, together of course with development consultancy and appraisal work.

We don’t invest in property ourselves. We remain as consultants, making us totally independent. This gives us the best possible vantage point from which to advise our clients. We are also present in Uganda, Tanzania and Rwanda, so we have a very heavy presence in East Africa. In total, we span 10 countries across the continent; and over the last 33 months, we have worked in every single country in Africa, apart from three. As such, we are able to access almost every single country in Africa to advise our clients, and this makes us a very important part of Knight Frank’s global coverage. Because we at Knight Frank have the best coverage across the continent of Africa, this provides us with an advantage over our competitors at the global level.

What are the main projects you are pushing at the moment?

There are new projects coming up all the time. I have just had a meeting about a very exciting project, which probably won’t come onto the market until 2019. Obviously, some of these projects have a very long time lead. In this case, we are talking about what will be the tallest building in Africa, but it’s probably a little bit early to say too much about it at this stage.

Beyond that, there are always exciting projects that are coming on. There is a good deal of retail that we are currently involved with. For instance, we played a role in letting Garden City on Thika Road; we were the lead letting agents for The Hub, which is a new shopping centre just opened in Karen. We are also the lead letting agents of Two Rivers, which is a 65,000 sq.m. shopping centre about to open on Limuru Road. All of these are very exciting projects, which are very much changing Nairobi and its landscape, and the way people shop.

There are also lots of exciting new office buildings coming onto the market. As I mentioned, with Nairobi being a regional hub, a lot of FDI (Foreign Direct Investment) comes into the city, which means there’s constant demand for new office space in the market at any one time.

What are some of the company’s most significant success stories?

I joined the company in 2003, and at that time we were just developing and nurturing relationships with local property developers, and I think that one of the secrets to our success – beyond the general economic growth that we’ve seen in Kenya over that time period, which I would stress we have been very lucky to be a part of – has been the relationship that we have nurtured with those local developers. We have been able to work with them to ensure that they develop buildings that are not overstated and that perfectly match tenants’ demand in the market at that time. We have grown with those developers, at times working on the first developments that they’ve ever carried out. We have put brand new, first-world, Fortune 500 tenants into brand new buildings, meaning that we start off with a clean building which is easily maintained, with good quality tenants, paying top-dollar rent. This is a good combination for us, and because we have maintained those relationships with those clients, we have effectively built our own management portfolio over time, and this has not only made us the biggest management company, but probably also the most efficient. We have shared in the learning process for this market with those developers.

How would you describe Knight Frank’s philosophy and what makes you different from the competition? You already mentioned that you can access any African country, for instance, which provides you with significant coverage.

You are right. Our global network certainly is extremely important for us. We very much value the strength of our brand and the integrity that we maintain, as a core principle of our business. As I said, we develop very good relationships with our clients, we are very careful about the projects that we involve ourselves with, and we hold those values very close to heart, both in terms of how we run our business ourselves and the relationship that we have with our clients.

We really are in it for the long game. The clients who we work for, we keep forever; such that the clients that we were working for in 2003 are still with us today. We nurture a very good relationship with them, we look after them. We maintain and enhance the value of their investments, which is really what our business is all about. It’s about looking after clients’ money and enjoying the trust of those clients in order to do so.

Does Knight Frank do any type of actions in terms of CSR?

Yes, very much so. We are very involved with all sorts of different levels of CSR, from sponsoring university students at different levels. We have become very involved with the University of Nairobi’s Land Economics department, from awarding computers to best-performing students to providing internships to the top students.

Beyond that, we sponsor local schools around where we are located, in different ways; we get involved in donations to organisations that carry out environmental conservation, etc. This is nothing unusual. In an emerging market like this, all similar companies do become involved in these kinds of practices. It’s very important that our staff to feel that we are giving something back to the local community, and so we do this as much as we can.

What are the main challenges to be faced by the real estate sector in Kenya and Knight Frank? What is being done to overcome these challenges?

As a firm of consultants in an emerging market, we obviously do face challenges that our colleagues in more developed parts of the world wouldn’t face. Like I said, over the past 15 years, we have been very lucky at Knight Frank as we have been working in an environment where we have witnessed a lot of rapid economic growth. This has given us the opportunity to make money, because we are advising clients and developers in a market where it’s easy for them to be successful, driven by demand, growth, and so on.

However, because this is an emerging market, this implies that the development or growth takes place in an environment which itself is not developed or grown. For instance, if one of our clients decides to develop a building, its corresponding infrastructure may well be behind the curve, in terms of keeping up with that building. So, in an acre of land in Westlands which may have previously supported a single dwelling, we will now see the development of a 40-50,000 sq. ft. office building, which may accommodate hundreds of people. The power, water and sewage demands, together with the road infrastructure, reveal that the place was in no way conceived to accommodate buildings of that nature.

Therefore, the challenges that we face are those of an emerging city struggling to keep up with the pace of development taking place. It always works in reverse. We are not in a situation where this city is being planned. Although the city is certainly developing a plan, the funds raised by the local authority come from those buildings once they are up; it doesn’t have that money in advance. As such, the utilities and the services are always trying to catch up with the pace of development. I think that’s probably the biggest challenge we face.

Our clients may put up a shiny new building in an area where we don’t have the supporting infrastructure around. This tends to happen afterwards; and yet our first-world clients will move into this building and expect the same level of service that they would expect in Sydney, Beijing, London or New York. We need to keep Knight Frank clients in those buildings as best as we can despite the challenges that we are faced with in terms of infrastructure.

Would you say infrastructure is a problem of the government, in a way?

Not really a problem. It’s a challenge that can only be solved at a government level. However, it is being solved at that level as the infrastructure improvements that we have seen in Nairobi have been phenomenal.

Nevertheless, common to every emerging market, this infrastructure tends to come behind the curve of the development itself. The new roads that we have seen built through Nairobi have had a tremendous impact on land values and the potential uses of those buildings, as well as the land that now benefits from this infrastructure. But it does always happen behind the curve, and as I said, this is a challenge that we must face. As such, buildings in Nairobi tend to have full redundancy in terms of water and power. If we see a breakdown in the provision of those services, we are able to accommodate them through the back-up systems that we have in place.

There will come a time in Nairobi where it won’t be necessary for every building to have its own generator and a week’s water storage, but we’re not there yet, and so we have to plan for those situations.

How would you define your strategy in terms of expansion plans, both at a local and regional level?

We have representation in all of Africa’s markets, so from our operations in Nigeria, we can hop into all the West African countries. We have a historically large presence in East Africa. Whether we will open in Ghana or Ethiopia really depends on whether those markets warrant it in the near future. I think that we are currently happy with the platform that we have, which enables us to deliver services to our clients across the continent as a whole. But we are consolidating our operations in South Africa. We are always open to options regarding expansion, not just into new markets, but also into secondary cities within markets where we already operate, so watch this space!

Are you looking for any kind of partners or investors?

No. The way Knight Frank operates is that our parent office in London retains a majority share in every single one of our offices, and so those partnerships that we have forged already exist, and we are happy with them. If we were to move into new markets, then we would certainly always look for an element of local shareholding. But we are not looking to dilute any of the shareholding that we have at the moment.

What is your vision for the future of the real estate sector in Kenya and Knight Frank in the next 2/3 years? What would you like to have achieved by then?

As I mentioned, we have been very fortunate in the past to be in Kenya during this time of powerful economic growth. I think we have been pretty much the only international real estate consultant in the country during that time. We are now seeing penetration of the market by many of our international competitors. It will take them a long time to develop the level of experience and understanding of this market that we have achieved. However, we have to be cognisant of the fact that this market is opening up, and we welcome that. International competition is beneficial and is a sign that the market is maturing. But I think that, if I were to look 2-5 years into the future, I would see far more international representation from those organisations, as Nairobi becomes more important on the international stage; and whilst we will still be the dominant player, we will be a name among many internationally recognised names.

What would be your message to our international audience considering Kenya as a business and investment destination?

I have been talking to many potential investors recently. I had a meeting with a firm that has significant property interests in Australia, and they were looking at Africa as the next emerging continent. They believe that Australian values may be peaking, since they are currently very high, given a good deal of Chinese investment into Australia. Perhaps this is the time to move their investment away from Australia and into Africa.

Having looked at the continent as a whole, they are focusing on Nairobi. Why here? Well, because if you look at more mature markets, you could almost say that they are too mature to represent the best opportunities. South Africa is thus a relatively mature market by African standards, as is Nigeria. This prompts you to focus on less mature markets, where you can find more opportunity. You could go to the other extreme and consider some very precociously emerging markets, such as the DRC or Rwanda. But you would face challenges there, given a lack of market depth, and you would be struggling to find decent occupiers, in order to achieve any kind of return.

As such, I believe that Nairobi probably represents the best combination, between opportunity and an established market. You have a relatively stable economy and you have a relatively stable currency. In fact, it has been extremely stable if you consider alternative investment hotspots.

Putting all of the above into the mix, and considering Lagos, Nairobi and Johannesburg as being the continent’s axis, it’s very clear to see that Nairobi has the furthest yet to go, in terms of its market growth, but all the foundations are here for that to happen: there’s a very easily understood legal system, investment opportunities are tremendous and the way Nairobi is positioned as a regional hub is perfect. At the moment, it’s acting as a ‘funnel’ for all the investment coming in from the Far East, i.e. South Korea, India, China and further beyond. All of that investment flows through Nairobi and into the rest of the continent, and it is perfectly placed for this purpose.

As the hub of a region with a population of between 150-180 million people, depending on which countries you consider to be part of East Africa, it is the perfect environment and the best place for someone to start their investment into the continent.

Is there anything else that you would like to mention that we haven’t yet touched upon?

I would like to talk about logistics. I think the reason why logistics is such a hot topic at the moment is that it’s probably the one sector associated with the property market in Nairobi – and you could say in the region as a whole – that is very under-utilised.

From this point of view, I suppose it represents the biggest opportunity. When I talk about logistics, I mean upmarket warehousing. If you look at retail, offices and residential property, you could argue that these are very mature if they are not in oversupply; and logistics represents the one sector or market where there is huge opportunity, because the market doesn’t really exist, in terms of first-world warehousing and storage space – as you would find in South Africa or Eastern Europe.

As a result, the logistics companies themselves, such as DHL, Bolloré and other occupiers, such as Imperial Health, are having to develop their own properties, because there isn’t a ready market here. I believe this will probably be the sector that will undergo the most changes moving forward.