NAIROBI, KENYA, JULY 11, 2016 – Growth of middle class in Kenya has led to increased demand for quality retail space in Kenya’s real estate sector in the past few years. Nairobi leads the way in the demand for retail space, evidenced by the growing number of shopping malls springing up in Nairobi.
Nairobi currently has mall space supply of approximately 3,945,000 square feet, making it the largest retail centre in Sub-Saharan Africa after South Africa. The Cytonn Retail Space Report 2016 established that the demand is largely driven by the rise of the middle class with increased purchasing power, and demand for sophisticated lifestyles, as well as a good transport network, which has opened up the Nairobi Metropolitan Area for development.
“The report themed ‘Investors’ Perspective on Kenya’s Retail Sector’ that focused on Nairobi, Metropolitan areas and key regions in Kenya, seeks to inform investors on the best investment areas for retail in Kenya, considering key factors, namely rental rates, occupancy levels and income yield,’’ said Elizabeth Nkukuu, Cytonn’s Chief Investment Officer. “Expansion over the years in the retail market has been driven by GDP growth, which has averaged 5.5% over the last five years, a rising middle class, increased purchasing power of the middle class, and shifting consumer habits that have driven the development of new shopping malls, as Kenyans more increasingly visit formal retail centers,” added Elizabeth.
Malls can be classified into three categories namely; destination malls have 400,001 to 800,000 square feet and more that two anchor clients. An example of a destination mall is Garden City Mall. Community malls, such as Mega City in Kisumu, are between 125,001 to 400,000 square feet while neighbourhood malls, such as Hazina Trade Centre, are between 20,000 to 125,000 square feet.
Growth of middle class has also witnessed a rise in online shopping sites like Jumia, OLX and Kilimall in the recent past. OLX has approximately 2 million viewers monthly while Jumia estimates approximately 2,000 people visit its website daily. Mobile banking, customer confidence in online transactions, growth in mobile technology such as 4G and user incentive schemes such as free delivery and discount offerings support the online shopping growth.
Retail market is attractive for investments in Kenya, especially in regional malls, which are recording high yields of up to 11.7% and occupancy of 94.0%. Mombasa, Kisumu and Nakuru counties are the leading frontiers in mall space supply, after Nairobi. The Mt Kenya region, which comprises of Meru, Embu, Nanyuki and Nyeri, has the largest development pipeline with construction of the Meru Greenwood Park and Cedar Mall in Nanyuki among others. Meru and Nanyuki have been identified as investment frontiers due to population growth and tourism activity.
The best markets for investing in retail sector are Kilimani and Karen in Nairobi and Mombasa City. Opportunity for development in the sector exists with a bias on major towns and cities such as Nairobi and its metropolis, Kisumu, Mombasa, Eldoret and the Mt. Kenya region.
“As per our analysis on the retail market sector, we considered 4 metrics; yield rates, current mall supply, income/ GDP per capita and upcoming mall supply, to provide a comprehensive ranking of the viable retail space opportunity according to location and performance.” said Johnson Denge, the Site and Acquisition Manager at Cytonn Investments. “Our outlook for the sector is positive and we expect the sector to continue attracting investments in both development and retailing sectors in the short to medium term. Positive outlook for the retail sector amid high uptake of 82.9% with increasing supply and positive market sentiment,” added Johnson.
According to the report, high financing costs negatively affect retail space development, but improved infrastructure is opening up satellite towns for development. Location, security and competition significantly affect the demand for retail space in Kenya.
The report is available online: Cytonn Real Estate Retail Market Report
Table: Cytonn Retail Space Comprehensive Ranking
| Retail Space Opportunity Across Kenya – Comprehensive Ranking | |
| Location | Rank |
| Kilimani | 1 |
| Karen | 2 |
| Westlands | 3 |
| Satellite Towns - Kiambu Road** | 4 |
| Ngong Road | 5 |
| Satellite Towns - Thika Road* | 6 |
| Mombasa | 7 |
| Kajiado | 8 |
| Eldoret | 9 |
| Kiambu Road | 10 |
| Thika Road | 11 |
| Satellite Towns- Mombasa Road** | 12 |
| Mt. Kenya Region | 13 |
| Eastlands | 14 |
| Kisumu | 15 |
| Mombasa Road | 16 |
| *Includes Satellite Towns in Thika Road such as Thika and Juja | |
| **Includes Satellite Towns in Kiambu Road such as Ruaka and Limuru | |
| ***Include Satellite Towns in Mombasa Road such as Athi River and Syokimau | |
| Source: Cytonn Research | |
