FINANCIAL BEHAVIORAL BIASES AND GROWTH OF COMMERCIAL REAL ESTATE INVESTMENT FIRMS IN NAIROBI CITY COUNTY, KENYA

Investment in real estate plays a crucial role in reducing poverty, enhancing income distribution, generating employment, and providing adequate housing. In Kenya, recent assessments indicate a deficit of approximately 2.1 million housing units, particularly in small and mid-sized dwellings, with nearly 51% of private households residing in informal settlements. This study examined the influence of financial behavioral biases on the growth of commercial real estate investment firms in Nairobi City County. Specifically, it assessed the effects of heuristic biases, prospect-related tendencies, herding behavior, and market-influenced decision-making on firm expansion. The research was grounded in behavioral theory, heuristic constructs, and prospect theory. A descriptive research design was adopted, targeting 69 commercial real estate firms registered under the Kenya Property Developers Association (KPDA). From each organization, five key managers—finance, property, residential site, and portfolio managers—were included, yielding a total population of 276 individuals. Using non-probability convenience sampling, 164 managers were selected. Primary data were collected via structured questionnaires and analyzed using SPSS version 22, employing both descriptive statistics (means, percentages, frequencies) and inferential techniques. The findings revealed that cognitive biases significantly and negatively affect the growth of commercial real estate firms. Investors exhibited greater sensitivity to losses than gains and tended to rely on peer influence over professional advice. The study concludes that recognizing these psychological tendencies is critical for improving investment decisions and accurately assessing property values. Recommendations include training managers to mitigate heuristic biases, reducing reliance on irrelevant information, enhancing investor education, and establishing a government-led regulatory authority to formulate comprehensive policies and oversight mechanisms. These measures are expected to support sustainable growth in Kenya’s real estate sector.