The effects of Covid-19 have taken a toll on the property sector with commercial real estate segment recording a drop in the rental yields.
On the contrary the Residential apartments registered relatively higher average total returns to investors.
The drop in demand for office space was brought about by the fact than many business closed during the pandemic with potential buyers diverting the money to other expenditures.
This is according to Cytonn Investments’ Q3 ’2020 Markets Review, which highlights the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and total investor returns.
The report notes that the retail and commercial office sectors recorded declines in rental yields to 7.4 percent and 7.2 percent in Q3’2020, from 7.8 percent and 7.5 percent, respectively in FY’2019.
On the rental front at residential apartments saw 5.4 percent rise compared to detached markets at 4.2 percent.
“The main challenges facing the sector during the period under review were lower purchasing power as people have lost their jobs, travel restrictions which mainly affected the performance of the hospitality sector, business restructuring with some firms downsizing, constrained financing for developers, and the existing oversupply in the commercial office and retail sectors, with a surplus of 6.3 million square feet and 2.0 million square feet, respectively,” stated Effie Otieno, a Research Assistant at Cytonn.
The land sector recorded an overall annualized capital appreciation of 2.4 percent, indicating that investors still consider land as a good investment asset in the long term.
In the residential sector, price appreciation in the market remained subdued with both detached units and apartments recording declines to 0.1 percent during the quarter. Ridgeways, Runda Mumwe and Thindigwa registered the highest capital appreciation at 3.0 percent, 2.6 percent and 2.3 percent, respectively.
According to the report, Gigiri, Westlands and Karen were the best performing office nodes in Q3’2020 recording rental yields of 9.0 percent, 8.1 percent, and, 8.1 percent, 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.
This comes even as the World Bank projected that less developed markets like Kenya are expected to decline by between 2.0% and 3.0%.
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.,” the report noted.
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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