Cytonn Real Estate, the development affiliate of Cytonn Investments, today released its Kampala Real Estate Investment Opportunity Report - 2017. The report is in line with providing investors a diversified portfolio of investment grade real estate products across Sub Saharan Africa. The report themed “A Pearl of Opportunity” focused on the performance and the investment opportunity in the real estate sector in Kampala in 2017. It is based on research conducted in Kampala between June and July 2017 by Cytonn’s Research & Deal Origination (RDO) Team.
The report pointed out that the most attractive typologies and areas for development are Grade A offices (yield of 11.4%), 2-bedroom apartments in Kololo (yield of 10.0%), 3-bedroom houses in Naguru (yield of 8.9%), and 3-bedroom houses in Naalya (yield of 7.2%). This is mainly as a result of high demand for real estate residential units in these markets against low supply, and demand for institutional Grade A commercial offices.
Looking at the regions where we have done market research, Nairobi, Kampala and Kigali, Kampala ranked very compelling, coming up as the second most compelling market in terms of returns.
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Comparative Analysis: Kampala, Nairobi and Kigali |
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City |
Residential |
Commercial Office |
Retail |
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Kampala |
6.8% |
10.6% |
10.2% |
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Nairobi |
5.6% |
9.3% |
10.0% |
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*Kigali |
9.2% |
12.9% |
13.1% |
Speaking during the release of the report, Cytonn’s Managing Partner & Chief Executive Officer, Edwin H. Dande, noted that “Cytonn has over Kshs 82 bn of projects under mandate, across 10 real estate projects, all of which are in Kenya. It is not time to provide diversification to our investors. We have registered Cytonn Uganda, we have completed market research, we are now looking for opportunities in this market.” Edwin added that “Cytonn is going to partner will local experts and networks to do adapt what we have done in Kenya to the compelling Kampala market - delivering the best returns to our investors, housing the middle class, creating jobs and training entrepreneurs. We shall be targeting to deploy at least USD 100 million of investment in this market.”
Speaking during the release, Cytonn Investments Senior Manager, Regional Markets, Mr. Johnson Denge, noted that “before making any investment, our Research and Deal Origination (RDO) team spends time in the target market, collecting and analyzing data to make the best investment recommendation for our investors. As such, and in line with our regional expansion strategy, we have been carrying out research on various markets in the Sub Saharan African region. We started with Kigali - Rwanda in 2016, and between June and July 2017, we carried out a real estate market research in Kampala – Uganda.” Real estate in Kampala has attractive returns with average rental yields of 6.8%, 10.2%, and 10.6% in residential, retail and commercial office, respectively, against average rental yields of 5.6%, 10.0% and 9.3% for similar themes in Nairobi. Development of real estate continues to provide attractive returns, while delivering housing to combat the housing deficit of 1.6 million units in Uganda, which grows by 100,000 units per annum in Kampala alone. The key drivers for the attractive returns in the Kampala market for the best performing zones have mainly been high demand in the areas, ease of access from the CBD, and low supply in the market to cater for the high demand.”
According to the report, on average high end residential zones of Kololo, Naguru and Bugolobi had rental yields of 6.1% and occupancy levels of 83.9%, with Upper Middle Income areas consisting of zones such as Naguru, Mbuya, Ntinda, Muyenga and Lubowa having on average rental yields of 7.4% and 84.9% occupancy, middle income areas of Naalya, Kiwatule, Namugongo and Kira among others recorded average rental yields of 5.9% and 88.8% occupancy, with commercial offices having average rental yields of 10.6% at 86.0% occupancy and retail recording average rental yields of 10.2% and 71.2% occupancy. Speaking during the release, Cytonn Investments Head of Private Equity, Mr Shiv Arora, noted that “performance of the retail sector was construed by the high supply in the market as a result of a retail boom over the last five years that saw malls coming up next to each other in the City. We thus expect to witness reduced development in the retail sector with investment development activity being concentrated in the middle income residential sector and in Grade A offices in areas with low supply such as Kololo.”
To identify the investment opportunity in the Kampala Market, the report ranked the various submarkets based on rental yields, land prices per acre and state of infrastructure in the suburbs. Based on the ranking,
- For two bedroom units, Kololo and Nakasero were the best investment areas in the high end areas with Namugongo and Naalya being the best investment areas for two bedroom apartments in the middle class due to the lower land prices and higher yields,
- For three bedroom apartments, Naalya was the best investment destination for middle income areas due to improved infrastructure and Naguru the best for high income areas,
- For standalone units, Ntinda offers the best investment opportunity due to high yields of more than 6%, relatively low land prices compared to Nakasero and Kololo areas and good infrastructure including well tarmacked roads with access to main highways,
- In the commercial office and retail theme, Grade A offices in Kololo offer the best investment opportunity due to the low supply and high returns with average rental yields of 11.4%.
The Report noted that the key drivers for the real estate market in Kampala are mainly i) population growth at 3.2% p.a, compared to a global average of 1.2% p.a, ii) urbanization at 5.2% p.a compared to a global average of 2.0%, iii) improved infrastructure, and iv) increased incomes as seen through economic growth with an average GDP growth rate of on average more than 5.0% over the last five-years. The key challenges remain to be, high construction and infrastructural costs, inadequate off taker financing in the market and high financing costs of up to 28% hindering provision of affordable real estate products.
The report is available online: (link here)
Tabe 1: Areas to Invest in, in Kampala
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Investment Areas in Kampala |
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Theme |
Class |
Areas |
Specific Areas and Themes for investment |
Reasons |
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Residential
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High Income |
Nakasero, Kololo, Bugolobi |
Kololo - High End Serviced Apartments |
High demand evidenced by the more than 85% occupancy, proximity to CBD |
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Upper Middle |
Naguru, Lubowa, Mbuya, Luzira, Munyonyo |
Naguru - 3 bed apartments |
High demand, low supply, proximity to CBD, ample supply of amenities including schools and hospitals |
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Ntinda, Lubowa – Mid Income Stand Alone houses |
Good performance with yields of more than 6%, improvement in infrastructure attracting population to these areas |
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Middle Income |
Naalya, Ntinda, Kiwatule, Bukoto, Nagira |
Naalya and Namugongo - 2 and 3 Bed Apartments |
High demand and uptake, good infrastructure |
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Commercial Office |
Grade AB |
Kololo, Nakasero, Bugolobi |
Kololo -Grade AB |
High demand, low supply, proximity to CBD, ample supply of amenities, attractive returns with average rental yields of 11.4% |
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For residential, 3 bed room apartments offer the best investment opportunity in both the upper middle income areas and in the middle income areas as they have high returns with yields of 9.0% and 7.2% and uptakes of 93% and 95%, respectively The opportunity in Kampala is in Grade A commercial office blocks which have high yields of 11.4%, high occupancy of 87.3% and are in low supply |
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Source: Cytonn Research
Table 2: High End Residential Market Kampala Performance
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High End Residential Market Kampala Performance |
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Typology |
Average Size SQM* |
Monthly Rent USD |
Price Per Unit in USD |
Price Per SQM in USD |
Price Per SQM in Kshs |
Rental Yield |
Occupancy |
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2 Bed Apartments |
130 |
1,900 |
237,500 |
2,083 |
215,625 |
10.0% |
82.3% |
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3 Bed Apartments |
192 |
2,522 |
343,000 |
1,786 |
198,864 |
8.9% |
85.5% |
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3 Bed Villas |
325 |
2,500 |
825,000 |
2,595 |
268,607 |
2.9% |
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Stand Alone Bungalows |
650 |
3,250 |
1,400,000 |
1,343 |
221,786 |
2.8% |
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Average High End |
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|
1,952 |
226,221 |
6.1% |
83.9% |
Source: Cytonn Research
Table 3: Upper Middle Market Kampala Residential Performance
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Upper Middle Market Kampala Residential Performance |
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Typology |
Average Size SQM* |
Monthly Rent USD |
Price Per Unit in USD |
Price Per SQM in USD |
Price Per SQM in Kshs |
Rental Yield |
Occupancy |
Uptake |
|
3 Bed Apartments |
142 |
1,240 |
175,298 |
1,370 |
141,831 |
8.9% |
91.7% |
92.9% |
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3 Bed Standalone |
166 |
1,050 |
145,500 |
908 |
93,957 |
8.6% |
80.0% |
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4 Bed Apartments |
188 |
1,444 |
230,714 |
1,209 |
125,087 |
7.1% |
79.1% |
82.2% |
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4 Bed Standalone |
237 |
1,467 |
262,222 |
1,136 |
117,592 |
6.8% |
82.5% |
75.1% |
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5 Bed Standalone |
297 |
1,983 |
346,667 |
1,166 |
120,720 |
5.8% |
91.2% |
82.4% |
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Average Upper middle |
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|
|
1,158 |
119,837 |
7.4% |
84.9% |
83.2% |
Source: Cytonn Research
Table 4: Middle Class Residential Market Performance
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Middle Class Residential Market Kampala Performance |
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Typology |
Average Size SQM* |
Monthly Rent in UGX”000” |
Price Per Unit in UGX”000” |
Price Per SQM in UGX |
Price Per SQM in Kshs |
Rental Yield |
Occupancy |
Uptake |
|
|
3 Bed Apartments |
103 |
1,667 |
294,750 |
2,877,176 |
83,059 |
7.2% |
75.0% |
95.0% |
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|
3 Bed Standalone |
156 |
3,163 |
575,000 |
3,239,024 |
93,505 |
7.0% |
96.7% |
87.5% |
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2 Bed Apartments |
86 |
831 |
284,354 |
3,252,215 |
96,794 |
5.6% |
83.3% |
95.0% |
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4 Bed Standalone |
205 |
2,000 |
732,500 |
3,517,698 |
101,550 |
3.8% |
100.0% |
97.5% |
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Average Middle Class |
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|
|
3,221,528 |
93,727 |
5.9% |
88.8% |
93.8% |
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Source: Cytonn Research
Table 5: Commercial Office Market Kampala Performance
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Commercial Office Performance Kampala |
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Office Grade |
*Market Share |
Rent Per SQM** USD |
Rent Per SQM Kshs |
Service Charge Per SQM USD |
Rental Yield |
Occupancy |
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Grade A |
25.0% |
16.5 |
1,707.8 |
3.5 |
11.4% |
87.3% |
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Grade C |
12.0% |
13.4 |
1,386.9 |
2.0 |
10.5% |
84.1% |
|
Grade B |
63.0% |
15.6 |
1,610.1 |
2.5 |
10.1% |
86.6% |
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Average |
|
15.2 |
1,568.2 |
2.7 |
10.6% |
86.0% |
Source: Cytonn Research
Table 6: Retail Market Performance Kampala
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Retail Market Performance Kampala |
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Mall Typology |
Average Rent Per SQM* in USD |
Occupancy |
Yield |
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Community Malls |
18 |
77.0% |
11.6% |
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Destination Malls |
23 |
80.0% |
11.0% |
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Neighbourhood Malls |
14 |
56.7% |
7.7% |
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Average |
18 |
71.2% |
10.1% |
Source: Cytonn Research
