Decision - making Criteria for Investing in Commercial Real Estate in Kenya

Abstract

Commercial real estate investments in the Kenya’s capital city-Nairobi reveal the following: A shrinking occupation demand; Disparities between expected and actual incomes; Difficulties in meeting debt servicing obligations and difficulties in completing construction projects within the specified cost and time frames. In spite of these problems, new, large and very expensive buildings continue to mushroom in the city. Therefore, there appears to be unexplained reasons that compel investors to continue investing in commercial real estate. It is against this back ground that research was undertaken to establish the basis of decision-making while investing in these properties. The research was based on two main objectives, namely; to identify and rank the factors that influence the decision to invest in commercial real estate and propose steps to be followed by investors in the decision to invest in these properties in order to, amongst other goals, minimise disparities between the expected and actual returns. A random sample of commercial buildings in the city was s tudied and it was established that, expected income was the most important factor influencing the decision to invest in commercial real estate followed by expected returns from the investment. While it was observed that the commercial real estate investor in Kenya is fairly rational and economically led, a lack of systematic and formal decision making rules and procedures was noted. The study’s main proposal is that the decision to invest in commercial real estate ought to be undertaken in a systematic manner. Effective decision making rarely occurs by chance but involves a logical, sequential and ordered approach. The researcher is also of the opinion that a standard school of appraisal should be developed and introduced in Kenya. Continuous professional development programmes should also be instituted