Cytonn Real Estate, the development affiliate of Cytonn Investments, has released the Kenya Retail Real Estate Sector Report 2019 highlighting the performance of the retail real estate sector in Kenya in 2019.
The report themed “Increased Market Activity
to Promote Retail Growth”, which showed investment opportunity lies in Kenyan
County headquarters in some markets such as Mombasa, Kiambu and Mt. Kenya that
have retail space demand of 0.2mn, 0.8mn and 0.2mn SQFT, respectively.
The report focused on the performance of the retail real estate in Kenya based on rental yields, occupancy rates, as well as demand and supply, to identify the trends, with the research conducted on 8 retail nodes in Nairobi (Westlands, Kilimani, Karen, Ngong Road, Thika Road, Kiambu & Limuru Road, Mombasa Road and Eastlands), Nairobi Satellite Towns and the key urban cities of Eldoret, Mombasa, Kisumu and the Mt. Kenya Region, which include Nyeri, Meru and Nanyuki Towns.
According to the report, the retail sector recorded an increase of 1.1 mn SQFT of mall space into the market in 2018, leading to a supply of 12.5 mn SQFT in 2019, from 11.4 million SQFT in 2018.
Performance in key urban cities softened, recording average rental yields of 7.0% in 2019, 1.6% points lower than the 8.6% recorded in 2018. The reduced performance is largely attributed to a 10.6% reduction in rental rates to Kshs 118 per SQFT in 2019, from Kshs 132 per SQFT in 2018, and a surplus in retail space coupled with stiff competition between malls in some nodes such as Nairobi, which recorded an oversupply of 2.8 mn SQFT. Cytonn Real Estate’s Research Analyst, Joseph Wanga, noted that “Despite the decline in yields, we remain upbeat about performance of the sector as it is still cushioned by increased market activity driven by the entry of international retailers into the Kenyan market and the expansion efforts by local retailers such as Naivas and Tuskys as they take advantage of the attractive rental rates.’’
The main drivers for the sector were (i) positive demographics as Kenya’s urban population continues to expand at an annual rate of 4.3%, (ii) continued change in tastes and preferences by a growing middle class towards international products, thus, creating a niche for international retailers, (iii) infrastructure has encouraged a growth in mall space as this encourages tenancy and footfall, and (iv) growth of Small and Medium-Sized Enterprises (SMEs). ‘’However, the sector faces several challenges due to a tough financial environment, pushing property managers to employ prudent methods in a bid to retain tenants and also to target international anchor tenants’’ noted Joseph.
Nairobi Metropolitan Area (NMA) Retail Performance declined by 1.0% points to
8.0%, from 9.0% in 2018 attributed to an increase in retail space supply of 0.8
mn SQFT within the past year with the addition of malls such as Waterfront, The
Well, Mountain View and the expansion of Westgate and Sarit Centre malls.
Kilimani, Ngong Road and Westlands were the best-performing retail nodes within
the NMA recording rental yields of 9.9%, 9.2% and 9.2%, respectively, in 2019
attributed to the nodes serving the upper middle income and high-end population.
According to the report, the key cities covered have a total mall space supply of 16.1 mn SQFT against a demand of 14.4 mn SQFT, resulting in an oversupply of 1.7mn SQFT. Nairobi, Uasin Gishu, Kisumu and Nakuru Counties were the most over-supplied areas by 2.8 mn, 0.2 mn, 0.2 mn and 0.1 mn SQFT, respectively. Kiambu County was the highest under-supplied area by 0.8 mn SQFT while Machakos, Kajiado, Mt.Kenya and Mombasa were under-supplied area by 0.2 mn SQFT each.
“The outlook for the sector is neutral and we expect to witness reduced development activity in Nairobi, with developers shifting to county headquarters in some markets such as Kiambu and Mt. Kenya that have retail space demand of 0.8mn and 0.2mn SQFT, respectively,” said Wacu Mbugua, Research Analyst at Cytonn.
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