According to the report by Cytonn Real Estate, the residential sector in Nairobi recorded an improvement in performance with average total returns to investors coming in at 5.1 percent Y/Y, up from 4.7 percent Y/Y recorded in FY’2020.
The retail and commercial office sectors recorded declines in rental yields to 7.4 and 6.8 percent in Q1’2021, from 7.5 and 7.0 percent, respectively in FY’2020.
The land sector recorded an overall annualized capital appreciation of 2.8 percent, indicating that investors still consider land as a good investment asset in the long term.
“Some of the key factors that have continued to shape the performance of the real estate sector include:
i) positive demographics
ii) improving infrastructure opening up areas for development
iii) improved investor confidence with Kenya’s ease of doing business ranking coming in at #65
iv) continued investor focus on affordable housing
v) the government activities to enable access to affordable mortgage rates e.g. from Kenya Mortgage Refinance Company” Stated Effie Otieno, a Research Analyst at Cytonn Investments.
There are however a couple of challenges facing the sector among them;
i) Travel restrictions in the country,
ii)The existing oversupply in some sectors e.g. 2.0 mn SQFT in the retail sector and 6.3mn SQFT in the commercial office sector
iii)tough economic environment affecting the purchasing power of people, iv)shift towards e-commerce affecting the uptake of retail spaces,
v)constrained financing options in the markets,
vi)Business downsizing and adaptation of work from home affecting the demand for commercial office spaces.
In the residential sector, apartments recorded an average total return of 5.3 percent y/y while detached units recorded an average total return of 4.8 percent y/y.
Detached units in Rosslyn, Ruiru, and Kitisuru recorded the highest average y/y returns at 6.7, 6.3, and 5.9 percent, respectively, while apartments in Westlands, and, South C, recorded the highest average y/y total returns of 6.8, and, 6.5 percent respectively.
According to the report, Gigiri and Karen were the best performing submarkets in Q1’2021 recording rental yields of 8.3 and 8.0 percent, respectively attributed to their superior locations, availability of high quality office spaces charging prime rental prices, relatively good infrastructure, and low supply of commercial office spaces within the markets.
In the retail sector, Westlands and Karen were the best performing nodes recording average rental yields of 10.1% compared to the overall market average of 7.4%. The performance is attributed to the presence of affluent residents who have a high consumer purchasing power with the areas hosting high-end income earners, the ease of access to the areas, and, relatively high occupancy rates of above 81.0% against the market average of 74.9%.
For the land sector, the satellite towns recorded the highest annual capital appreciation of 7.2%, which is attributed to the affordability of land, continued focus on affordable housing, and improving infrastructure opening up the areas for development.
The outlook of the real estate sector is positive for one sector-land, neutral for four sectors-residential, retail, hospitality, and listed real estate, and negative for one sector-commercial office. Therefore, our overall outlook for the real estate sector is NEUTRAL, supported by; positive demographics, improving infrastructure, continued focus on the affordable housing front, and improved access to mortgages.
The performance of the sector is likely to be constrained by the existing oversupply in the commercial office font and the retail sector reduced consumer purchasing power brought about by the tough economic environment and reduced demand as businesses downsize especially in the commercial office sector and the retail sector.
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