Is It Still Profitable to Build Rental Apartments in Nairobi?

By Benard Onyango

Benard is the CEO and founder of Marble Engineering, the leading design and build company for residential and commercial construction in Kenya.

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Investing in rental apartments has long been one of the best ways to generate passive income in Kenya’s real estate sector. However, with changing economic conditions, rising construction costs, and shifting tenant preferences, many investors are wondering: Is it still profitable to build rental apartments in Nairobi?

To answer this question, we need to examine rental apartment investment returns in Nairobi 2024, costs, market demand, and future trends in the housing sector.

The Current State of Nairobi’s Rental Market

Nairobi’s real estate market remains strong, with rental apartments still in high demand. Urbanization and rural-to-urban migration continue to push more people into the city, increasing the need for affordable housing. According to recent reports, over 60% of Nairobi’s residents live in rental properties, making the sector a lucrative investment option.

However, investors must consider market segmentation. A Nairobi rental market analysis: High-income vs. low-income areas shows that different locations offer varying profitability. While high-end apartments in areas like Kilimani and Westlands attract premium rent, budget-friendly units in Embakasi and satellite towns experience lower vacancy rates due to affordability.

The disparity in rental yields between different locations highlights the importance of thorough market research before embarking on a construction project. Understanding the nuances of tenant demographics and their willingness to pay in different locations is crucial for maximizing returns.

For instance, high-end areas might command higher rents, but they also come with higher acquisition and construction costs, potentially impacting the overall yield. Conversely, while low-income areas might have lower rents, the sheer volume of demand and lower entry costs can make them equally, if not more, profitable.

How Much Does It Cost to Build an Apartment in Nairobi?

Before investing, you need to determine how much does it cost to build an apartment in Nairobi? Several factors influence construction costs, including:

Land Prices: Prime areas like Kileleshwa and Lavington have expensive plots, while areas like Ruaka, Thika Road, and Kitengela offer more affordable land.
Material Costs: Cement, steel, and other construction materials have seen price fluctuations, affecting overall budgets.
Labour and Approvals: Skilled labour and obtaining necessary permits add to the total cost.

On average, constructing a standard rental apartment range from KSh 35,000 to KSh 60,000 per square meter, depending on quality and location. This range reflects the diverse costs associated with different types of finishes, building materials, and the complexity of the design. High-end finishes and amenities will naturally push the cost towards the higher end of the spectrum, while more basic, functional designs can be achieved at the lower end. Investors need to balance their desire for quality with the need to keep costs manageable to ensure a profitable venture.

Best Nairobi Suburbs for Building Rental Units

Location is key when planning a profitable rental project. The best Nairobi suburbs for building rental units offer a combination of affordability, infrastructure, and tenant demand. Some of the top locations include:

Ruaka and Thindigua – Growing demand from young professionals working in Westlands and CBD. The proximity to major roads and the availability of social amenities like shopping centres and restaurants make them attractive to tenants.
Kikuyu and Limuru – Affordable land with easy access to Nairobi via the Southern Bypass. These areas offer a more suburban setting, appealing to tenants seeking a quieter environment away from the city centre
Ruiru and Juja – Proximity to universities like KU, Zetech and JKUAT ensures a steady supply of tenants. The rental market here is often characterized by smaller, more affordable units that cater to students’ budgets
Utawala and Embakasi – These areas offer a range of affordable housing options, attracting middle-income families and individuals.

These areas attract tenants due to lower rents compared to city-centre properties while still providing good infrastructure. The balance between affordability and accessibility is crucial for attracting and retaining tenants. Investors need to consider the long-term growth potential of these areas, including planned infrastructure developments and the overall economic outlook.

Expected Rental Yield for Apartments in Nairobi

One of the biggest considerations for investors is expected rental yield for apartments in Nairobi. Rental yield is calculated by dividing the annual rental income by the total cost of the property and multiplying by 100.

In Nairobi, rental yields vary depending on the location and type of property:

High-end apartments (Kileleshwa, Lavington, Kilimani): 5-7% rental yield. While these areas offer premium rents, the high acquisition and construction costs often result in lower yields compared to other areas.
Middle-income areas (Lang’ata, South B, Kasarani): 7-9% rental yield. These areas strike a balance between rental income and property costs, offering a more attractive yield for investors.
Affordable housing zones (Ruai, Ruiru, Utawala): 9-12% rental yield. The lower construction costs and high demand in these areas contribute to higher rental yields.

Affordable rental units tend to generate higher yields due to their lower construction costs and high tenant demand.

Most Profitable Apartment Sizes in Nairobi Real Estate

Investors often ask, what are the most profitable apartment sizes in Nairobi real estate? Generally, smaller units tend to have better returns due to affordability and high occupancy rates.

Bedsitters and Studio Apartments: Popular among students and young professionals; they offer high demand and quick occupancy.
One-Bedroom Units: A great balance of affordability and comfort, attracting long-term tenants.
Two-Bedroom Apartments: Preferred by small families; demand remains steady but at slightly lower yields.

Larger units like three-bedroom apartments are better suited for high-end locations but may experience longer vacancy periods.

Where to Build Affordable Rental Flats in Nairobi

With Nairobi’s high property prices, many investors are looking for where to build affordable rental flats in Nairobi to maximize profits. Areas with growing infrastructure and lower land costs provide better opportunities.

Some of the top areas include:

Kasarani and Mwiki – Strong demand for budget-friendly rentals.
Joska and Kamulu – Rapidly developing suburbs with growing tenant interest.
Thika Road (Githurai, Ruiru, Juja) – Close to universities and transport hubs.

Investing in these areas ensures lower construction costs while still tapping into Nairobi’s rental demand.

Read Also: Investing in Budget Housing in Kenya

Trends in the Nairobi Rental Property Market

To succeed in real estate, investors must keep up with trends in the Nairobi rental property market. Some of the key trends include:

Rise in Demand for Affordable Housing: High cost of living has pushed many tenants towards budget-friendly rental options.
Shift Towards Mixed-Use Developments: Combining residential and commercial spaces is gaining popularity.
Increased Use of Technology: Digital rent payments and online property listings are changing the way landlords manage tenants.

Understanding these trends helps investors align their projects with market needs.

Future Rental Property Demand in Nairobi 2025

What does the future hold for investors? Future rental property demand in Nairobi 2025 is expected to remain strong, driven by:

Urban Population Growth: More people moving to Nairobi will increase housing needs.
Government Incentives for Affordable Housing: Initiatives such as tax cuts for landlords may encourage further investment.
Infrastructure Expansion: New roads and transport networks will open up more areas for development.

Investors who plan for long-term growth will benefit from Nairobi’s evolving real estate landscape.

Is It Better to Buy or Build Rental Property in Kenya?

Investors often ask: Is it better to buy or build rental property in Kenya? The answer depends on financial goals, location, and risk tolerance.

Buying an existing property:

Faster income generation since units are already built.
Lower construction risks but potentially higher purchase costs.
Renovation costs may be needed to attract tenants.

Building rental apartments:

More control over design and costs.
Higher profit margins if land is acquired at a good price.
Longer development timelines but potential for greater long-term returns.

Both options can be profitable, but building offers better control over rental yields and design customization.

Final Thoughts

So, is it still profitable to build rental apartments in Nairobi? Yes—if done strategically. Choosing the right location, focusing on high-demand units, and managing costs effectively can ensure strong rental apartment investment returns in Nairobi 2024.

Marble Engineering specializes in designing and constructing high-yield rental apartments. Whether you’re looking for the best Nairobi suburbs for building rental units or need expert advice on apartment investments, we can help. We operate across Kenya and are available at any point in time to answer your questions. Contact us today to look at our house plans or discuss your construction project.