FOR IMMEDIATE RELEASE
“KILIMANI, KAREN, AND WESTLANDS REMAINED AS THE BEST PERFORMING RETAIL NODES IN THE NAIROBI METROPOLITAN AREA WITH AVERAGE RENTAL YIELDS OF 10.1%, 9.7%, AND 9.1%, RESPECTIVELY”
Nairobi, Kenya. Monday, 31ST JULY 2023
Cytonn Real Estate, the development affiliate of Cytonn Investments, has released its Kenya Retail Sector Report-2022. The report analyses the performance of the retail sector in Kenya based on rental rates, occupancies and rental yields, thereby identifying the investment opportunities and outlook for the sector.
According to the report, the Kenyan retail sector displayed a stable overall performance, with the average rental yield coming in at 7.5% in 2023, 0.7% points increase from 6.8% recorded in 2022. Notably, the average rent per SQFT increased by 7.1% to Kshs 130 in 2023 from Kshs 122 in 2022, owing to; i) an improved business environment in post COVID-19 era and post-electioneering period that resulted in increased transaction volumes, ii) an upward revision of rental charges in most community and neighbourhood malls in towns outside NMA driven by heightened demand from retailers expanding their businesses into newly developing economic regions of the country, and, iii) addition of high-end malls that attracted higher rental rates such as the Business Bay Square and Broadwalk Mall in Nairobi, Greenwood Mall in Meru and Kilele Mall in Murang’a. Moreover, the average occupancy rate increased by 2.1% points, reaching 79.4% in 2023 compared to 77.3% in 2022. This increase was mainly driven by the rapid expansion of both local and foreign retailers, such as Simbisa brands, Carrefour, Naivas, and Quickmatt. These retailers tapped into newer market opportunities and occupied substantial spaces in the newly established malls, including Broadwalk and Meru Greenwood, among others. Additionally, the expansion of these retailers into spaces previously occupied by troubled retailers like Nakumatt and Tuskys significantly improves the occupancy rates of these malls and contributes to the overall resilience of the retail market. The performance of the key urban centres in Kenya is as summarized below:
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(All Values in Kshs unless stated otherwise) |
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Cytonn Report: Summary of Retail Performance in Key Urban Cities in Kenya 2022/2023 |
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Region |
Rent 2023 |
Occupancy Rate 2023 |
Rental yield 2023 |
Rent 2022 |
Occupancy Rate 2022 |
Rental yield 2022 |
∆Y/Y in Rental Rates |
∆Y/Y in Occupancy Rate |
|
Nairobi |
177 |
79.2% |
8.2% |
173 |
75.9% |
7.8% |
2.3% |
3.3% |
|
Nakuru |
79 |
80.5% |
7.9% |
73 |
81.3% |
7.4% |
8.6% |
(0.8%) |
|
Mombasa |
127 |
82.6% |
7.8% |
110 |
84.0% |
7.0% |
15.5% |
(1.4%) |
|
Kisumu |
107 |
79.7% |
7.0% |
108 |
79.7% |
7.0% |
(0.4%) |
0.0% |
|
Eldoret |
132 |
86.2% |
6.7% |
132 |
86.1% |
6.6% |
0.0% |
0.1% |
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Mount Kenya |
161 |
68.3% |
7.8% |
138 |
56.7% |
5.3% |
16.3% |
11.7% |
|
Average |
130 |
79.4% |
7.5% |
122 |
77.3% |
6.8% |
7.1% |
2.2% |
Source: Cytonn Research
Nairobi was the best-performing region with average rental yields coming in at 8.2% in 2023, 0.7% points higher than the market average of 7.5%, driven by; i) the increased average rental charges, which came in at Kshs 177 per SQFT from Kshs 173 per SQFT, and, ii) increased demand for high-quality retail spaces thus increasing the average occupancy rates to 79.2% in 2023 from 75.9% recorded in 2022. On the other hand, Eldoret recorded the least average rental yields coming in at 6.7% against the market average of 7.5% in 2023 and 0.1% points increase from 6.6% recorded in 2022 due to the unchanged rental rates, which remained at Kshs 132 per SQFT and a very marginal increase in average occupancy rates by 0.1% points to 86.2% in 2023 from 86.1% recorded in 2022. Notably, Mount Kenya was the most improved region, attributable to the significant improvement in occupancy rates and rental charges of the newly existing malls in the region, such as the Meru Greenwood Mall and Kilele Mall, among others. This saw an increase in the average rental yield by 2.5% points to 7.8% in 2023, from 5.3% recorded in 2022.
In the Nairobi Metropolitan Area (NMA), investment opportunities lie in Kilimani, Karen, and Westlands, which were the best-performing nodes with average rental yields of 10.1%, 9.7% and 9.1%, respectively, compared to the overall market average of 8.2%. The exceptional performance was attributed to the availability of high-quality retail spaces that command high rents, as well as the presence of quality infrastructure services in those areas. Additionally, prime retail spaces in the satellite towns have exhibited the highest occupancy rate and rental yield attributed to population growth in the regions prompting retailers to extend their services beyond the city centre and tap opportunities in satellite towns. This shift of focus aims to bring convenience to residents in the nearest and most accessible way. This is also at the back of reduced rents by the retail space owners to attract more clients in the region amid increased demand for consumer goods, services and entertainment facilities.
The table below summarizes the metrics that have a possible impact on the retail sector, that is, the retail space supply, performance, retail space demand, and concluding with the market opportunity/outlook in the sector;
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectoral outlook.
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Cytonn Report: Kenya Retail Sector Outlook 2023 |
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Sentiment 2022 |
Sentiment 2023 |
2022 Outlook |
2022 Outlook |
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Retail Space Supply |
Nairobi, Kisumu, Uasin Gishu and Nakuru remain the most oversupplied retail markets by 3.0 mn SQFT, 0.2 mn SQFT, 0.12 mn SQFT, and 0.1 mn SQFT, respectively, whereas areas such as Kiambu and Mt Kenya regions are both undersupplied by 0.5 mn SQFT. We expect the supply to increase further, particularly in Nairobi, with the addition of malls such as Ojijo Properties. |
Nairobi, Kisumu, Uasin Gishu and Nakuru still remain the most oversupplied retail markets by 3.3 mn SQFT, 0.2 mn SQFT, 0.1 mn SQFT, and 0.1 mn SQFT, respectively, whereas areas such as Kiambu, Mt Kenya, Mombasa, and Kajiado regions are undersupplied by 0.6 mn, 0.5 mn, 0.2 mn, 0.2 mn, and 0.1 mn SQFT respectively. Going forward, we expect to see investors and developers shifting their focus to these regions.
Notably, major retail developments delivered into the market in 2023 include Business Bay Square (BBS) mall in Eastleigh, delivering approximately 31,000 SQM in gross area. We expect the supply to further increase, particularly within the NMA, with the addition of an estimated 42,977 SQM through malls such as Global Trade Center (GTC), Crystal Rivers in Machakos, The Cove in Lavington, Lana Plaza in Kileleshwa, Park Place Avenue in Parklands and Beacon mall in Upperhill. Other notable developments expected to be delivered into the market outside of the NMA include Promenade Mall in Nyali and Nyali Bazaar in Mombasa.
However, notwithstanding, we anticipate a decline in the supply of malls in Kenya going forward as emphasis shifts towards convenience centres which are rapidly growing in popularity, owing to the convenience they offer. This is because they are situated closer to residential neighbourhoods |
Positive |
Neutral |
|
Retail Space Demand |
We expect the aggressive expansion by local and international retailers to cushion the overall demand and uptake for spaces in the sector. However, factors such as e-commerce which is still being adopted by some retailers, is expected to weigh down the optimum uptake of physical retail space in the market |
We expect the demand for retail space to be fueled by the continued aggressive expansion drive by both local and international retailers such as Naivas, Quickmart, Chandarana and Carrefour. This will assist in cushioning the overall demand and bolster the uptake of spaces in the sector. However, factors such as e-commerce stifling the demand for physical retail space and the existing oversupply of retail space in the NMA and Kenyan retail sectors (excluding NMA) at approximately 3.3 mn and 2.1 mn SQFT, respectively, are expected to weigh down the optimum uptake of physical retail space in the market |
Neutral |
Neutral |
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Retail Market Performance |
Kenyan retail sector performance overall remained stable, with the average rental yield coming in at 6.8% in 2022, unchanged from what was recorded in 2021. However, the average rent per SQFT increased by 3.5% to Kshs 122, whereas the average occupancy rate declined slightly by 1.1% points to 77.3% Nairobi Metropolitan Area was the best-performing region with an average rental yield of 7.8% in 2022, respectively in 2022
We expect to see improved performance driven by increasing foreign investor confidence in the Kenyan retail market, coupled with the aggressive expansion by local and international retailers such as Naivas, Simbisa Brands, Eat’N’Go, and, Quickmart, among many others. However, factors such as online shopping strategy and oversupply of spaces continue to be major challenges hindering the optimum performance of the sector. |
Kenyan retail sector performance overall improved, with the average rental yield coming in at 7.5% in 2023, 0.7% points increase from 6.8% recorded in 2022. Similarly, the average rent per SQFT increased by 7.1% to Kshs 130 from Kshs 122 recorded in 2022, whereas the average occupancy rate also increased by 2.1% points to 79.4% from 77.3% in 2022. Nairobi Metropolitan Area was the best-performing region with an average rental yield of 8.2% in 2023, 0.7% points higher than the market average rental yield of 7.5% recorded in 2023
We expect to see increased market activity supported by; i) ongoing expansion drive by local and international retailers such as Naivas, Quickmart, and Carrefour in sustained efforts to establish market dominance and capitalize on the low formal retail penetration in Kenya, ii) growth and continued entry of multinational retailers in the country such as Simbisa brands, ChicKing, Java House, Chicken Cottage among others, and, iii) increasing foreign investors’ confidence in the Kenyan retail market. |
Neutral |
Neutral |
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Our outlook for the Kenya retail market remains NEUTRAL, supported by factors such as i) growth and expansion efforts by both local and international retailers, ii) increased infrastructure development enhancing accessibility in satellite towns, and iii) positive demographics supporting demand for space. However, i) the continuous oversupply of retail space in the NMA and Kenyan retail sectors (excluding NMA) at approximately 3.3 mn and 2.1 mn SQFT, respectively, ii) market exits by major retailers such as Game Stores, Shoprite, Choppies, and iii) the rapid growth of e-commerce in the retail landscape, further projected to grow at a 6.7% CAGR (2023-2027) will hinder the optimum performance of the sector by limiting demand and uptake of spaces. |
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For more details, see the Cytonn Kenya Retail Report 2023 here: cytonn.com/topicals/kenya-retail-report-1
Source: Cytonn Research
Notes to the Editor:
Cytonn Investments is an independent investment management firm with offices in Nairobi - Kenya, and D.C. Metro - U.S. Cytonn is primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region.
Cytonn Real Estate is Cytonn’s development affiliate, which is focused on developing institutional-grade real estate targeted at specific institutional, high net-worth and Diaspora investors. Collective, Cytonn Investments and Cytonn Real Estate manage over Kshs. 82.0 billion in real estate projects.
For more information, kindly contact:
Clifford M. Mulama
Brand and Communications
254 (713) 840 107
Cytonn Investments Management Limited, Cytonn Square, Kilimani, Off Argwings Kodhek Rd,
P.O. Box 20695 – 00200, Nairobi, Kenya.
rdo@cytonn.com | +254 (743) 715 884 | +254 (701) 278 275
