Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Q3 ’2020 Markets Review.
The report highlights the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and hence, total investor returns.
According to the report, in the residential sector, apartments registered relatively higher average total returns to investors at 5.4% compared to detached markets at 4.2%.
The retail and commercial office sectors recorded declines in rental yields to 7.4% and 7.2% in Q3’ 2020, from 7.8% and 7.5%, respectively in FY’2019. The land sector recorded an overall annualized capital appreciation of 2.4%, indicating that investors still consider land as a good investment asset in the long term.
“The main challenges facing the sector during the period under review were; i) lower purchasing power as people have lost their jobs, ii) travel restrictions which mainly affected the performance of the hospitality sector, iii) business restructuring with some firms downsizing, iv) constrained financing for developers, and, v) the existing oversupply in the commercial office and retail sectors, with a surplus of 6.3 mn SQFT and 2.0 mn SQFT, respectively,” stated Effie Otieno, a Research Assistant at Cytonn.
In the residential sector, price appreciation in the market remained subdued with both detached units and apartments recording declines to (0.1%) during the quarter. Ridgeways, Runda Mumwe and Thindigwa registered the highest capital appreciation at 3.0%, 2.6 and 2.3%, respectively.
According to the report, Gigiri, Westlands and Karen were the best performing office nodes in Q3’2020 recording rental yields of 9.0%, 8.1%, and, 8.1%, respectively, attributed to the relatively good infrastructure mainly the road networks easing access to the areas and exclusivity of the areas with high quality offices thus attracting high- end clients and premium rental prices.
In the retail sector, Westlands and Karen were the best performing nodes recording average rental yields of 9.7% and 9.3%, respectively, attributed the residents’ high consumer purchasing power with the areas hosting high end income earners.
Out of the six sectors, the outlook is positive for one sector-land; neutral for three sectors-residential, retail and hospitality sector; and, negative for two sectors-commercial office and listed real estate. Therefore, the overall outlook for the real estate sector is NEUTRAL, supported by; positive demographics, improving infrastructure, improved access to mortgage, and, continued focus on affordable housing.
Factors likely to constrain the growth of the sector going forward include; business restructuring and downsizing thus affecting uptake of office space, constrained finances for developers, tough economic environment which has limited consumer spending and the existing oversupply in the office and retail sectors.
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