NAIROBI, Kenya – After a challenging year marked by contraction, Kenya's vital construction sector is demonstrating a significant rebound in 2025, providing a much-needed boost to the nation's economy. On Monday, November 24, 2025, the World Bank revised Kenya's economic growth forecast for the year upward from 4.5% to 4.9%, citing the faster-than-expected recovery in construction as a primary driver. This revival follows a 0.7% contraction in 2024, a sharp decline from the 3.0% expansion recorded in 2023, as detailed in the Kenya National Bureau of Statistics (KNBS) 2025 Economic Survey.

The downturn in 2024 was attributed to a confluence of factors, including subdued investor confidence, limited access to affordable financing, and reduced activity in both public and private sector projects. Data from the KNBS indicated that commercial bank loans to the sector dropped by 12.4% to KSh 528.0 billion in 2024, while cement consumption, a key indicator of activity, fell by 7.2%. However, signs of recovery began to emerge in the first half of 2025, offsetting a concurrent slowdown in the manufacturing sector.

Drivers of the Resurgence

The current upswing is being fueled by a dual charge of ambitious government-led projects and renewed private sector investment. A cornerstone of this recovery is the government's Affordable Housing Programme (AHP). Despite significant delivery gaps—with a report on November 18, 2025, noting only 1,795 units were completed in the year ending June 2025 against robust levy collections of Sh73.2 billion—the initiative continues to spur construction activity nationwide. By April 2025, the government reported that approximately 140,000 units were in various stages of construction, part of its ambitious goal to build 200,000 units annually.

Simultaneously, massive public infrastructure spending is injecting significant capital into the sector. President William Ruto announced in November 2025 a plan to invest KSh 5 trillion in key projects over the next three years, including the expansion of the Standard Gauge Railway and the dualing of major highways. Flagship projects like the Sh170 billion Rironi–Mau Summit Road, the Nairobi Western Bypass, and numerous mega-dams are creating substantial demand for materials and labor.

Economic Ripple Effects and Employment Concerns

The construction sector's revival is critical for Kenya's broader economic health due to its significant multiplier effect. The World Bank's revised 4.9% growth projection for 2025 underscores the industry's importance. Projections from research firm GlobalData suggest the market will grow by 2.9% in real terms in 2025, with its value potentially increasing from KSh 956 billion in 2024 to KSh 1.4 trillion by 2029.

However, the outlook for job creation presents a mixed and concerning picture. A Central Bank of Kenya (CBK) survey released in October 2025 indicated that no construction firms planned to hire new workers in 2025, a stark drop from earlier in the year. This pessimism is attributed to high taxes, energy costs, and weak purchasing power. This contrasts with government reports, such as a statement from Treasury Cabinet Secretary John Mbadi in June, that the AHP had directly employed 250,000 Kenyans. The KNBS reported that private sector employment in construction actually declined from 226,300 in 2023 to 223,400 in 2024.

Persistent Headwinds and Future Outlook

Despite the positive growth trajectory, the sector is not without its challenges. The cost of construction materials continues to rise, squeezing profit margins for developers. The KNBS Construction Input Price Index rose in the third quarter of 2025, driven by higher prices for steel, sand, and cement. This inflation, coupled with high interest rates, has made financing a persistent hurdle. Although the CBK made a modest rate cut in June 2025, borrowing costs remain elevated, impacting project viability.

Furthermore, bureaucratic delays and a sharp drop in building plan approvals in Nairobi—from over KSh 200 billion in early 2024 to KSh 50 billion in the first quarter of 2025—signal that regulatory hurdles persist. Industry experts, speaking at the Big 5 Construct Kenya exhibition in November 2025, highlighted a necessary shift towards innovation, including prefabricated housing and smart building systems, to counter these challenges.

In conclusion, while the construction sector's rebound is a welcome development for Kenya's economy, its sustainability hinges on addressing the deep-seated issues of high costs, financing accessibility, and regulatory efficiency. The government's infrastructure and housing agenda provides a strong foundation for growth, but translating this into widespread, sustainable employment and overcoming market headwinds will be the defining challenge for the remainder of 2025 and beyond.