Absa Group, South Africa’s third-biggest lender, is seeing surging interest among real estate investors in East Africa and plans to bolster its balance sheet to meet demand for financing.
“Kenya is the most dynamic market” of Absa’s 11 operations outside South Africa, with the property market a key and growing component, said Sandile Mpanza, head of commercial property finance for Africa at the lender’s corporate and investment banking business. Given the size and diversified nature of Kenya’s $132 billion economy “we definitely see this as an anchor in the region,” he said.
Absa’s commercial and investment banking unit has invested about R3.5 billion ($193 million) in property in Kenya, which accounts for more than a quarter of its real estate book outside South Africa.
“If we can double it over the next five years, we’d have done well,” Mpanza said.
Kenya’s real estate industry grew 5.3% last year, down from from 7.3% in 2023, while construction contracted 0.7%, partly due to high interest rates. The central bank has been lowering borrowing costs as inflation cools and deal appetite is expected to pick up, with developers seeking a minimum yield of 10% for dollar investments and 12% for those funded in shillings, according to Mpanza.
“We are seeing a lot more client-engagement interest around making acquisitions, developing those properties, whether it be residential, commercial, industrial or retail,” he said. “The outlook is that interest rates will continue to taper off over the next year or two, and that will really reinvigorate the sector.”
Investors have mainly focused on residential property, with demand driven by a shortage of quality, affordable accommodation. There is also interest in logistics and warehousing, which will be needed to cater for the upswing in e-commerce.
Even though there is a glut in premium office space, Absa is still seeing rising demand as investors seek newer, better-designed buildings with advanced air-conditioning systems and abundant natural light, Mpanza said.
