Cytonn Real Estate, the development affiliate of Cytonn Investments Management Limited today released the Nairobi Commercial Office Report that analysed the performance of the sector in 2016.The report themed “In Transition to a Buyers’ Market” looked at both the demand and the supply and performance of the commercial office subsector in Nairobi in 2016.
The report noted the commercial office space market is transitioning to a buyers’ market following increased supply with completions growing at a 5 year CAGR of 52.6% from 2.1mn square feet in 2012 to 7.4mn square feet in 2016.The average rental yields remained unchanged from 2015 at 9.3% with occupancy rates averaging at 88% in 2016, a slight drop of 1% from occupancy in 2015.
(R-L) Research Analyst Nancy Murule, Real Estate Services Manager Johnson Denge and Research Analyst Juster Kendi during the release
Speaking during the release, Cytonn Chief Investments Officer Elizabeth Nkukuu indicated that despite slight softening in the sector, the asset class continues to offer above average returns to investors. In 2016 the average returns from the sector were over 25.8% looking at both the rental yields and the capital appreciation compared to the equities that returned negative 8.5%, the FTSE index down 0.2% and the average yield on the 364-day Treasury bill at 11.6%. Elizabeth further emphasized on the need for investors to focus on untapped areas that have the potential to offer the desired returns in the oversupplied market.
Cytonn CIO and Head of Real Estate Elizabeth N. Nkukuu speaks during the release
Real Estate Services Manager Johnson Denge said the opportunity in the sector lies in specific pockets of value such as in office zones with low supply like Gigiri, office grades with low supply and high returns such as grade A offices with only a 10% market share and a 10% rental yield on average. Differentiation will also give an investor an edge, which can be achieved through mixed-use developments, investing in serviced offices and green buildings which are gaining traction in the market.
Real Estate Services Manager Johnson Denge speaks during the report release
