“KILIMANI, WESTLANDS, AND KAREN REMAINED THE BEST PERFORMING RETAIL NODES IN THE NAIROBI METROPOLITAN AREA WITH RENTAL YIELDS OF 9.7%, 9.0% AND 8.9%, RESPECTIVELY
Nairobi, Kenya. Monday, 15th August 2022
Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their 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’s overall performance remained stable, with the average rental yield coming in at 6.8% in 2022, unchanged from what was recorded in 2021. Notably, the average rent per SQFT increased by 3.5% to Kshs 122 in 2022 from Kshs 118 in 2021, owing to an improved economy that resulted to increased transaction volumes, coupled with the addition of high end malls that attracted higher rental rates such as the GTC Mall in Nairobi. The average occupancy rate however declined by 1.1% points to 77.3% in 2022, from 78.4% that was recorded in 2021, mainly attributed to the addition of new malls into the market such as the GTC and Meru Greenwood Malls among others, which in turn weighed down the overall absorption rate. The performance of the key urban centres in Kenya is as summarized below:
(All Values in Kshs unless stated otherwise)
|
Summary of Retail Performance in Key Urban Cities in Kenya 2022 |
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|
Region |
Rent 2021 |
Occupancy Rate 2021 |
Rental yield 2021 |
Rent 2022 |
Occupancy Rate 2022 |
Rental yield 2022 |
Change in Occupancy Y/Y |
Change in Yield Y/Y |
|
Nairobi |
168 |
75.8% |
7.5% |
173 |
75.9% |
7.8% |
0.1% |
0.3% |
|
Nakuru |
59 |
80.0% |
6.1% |
73 |
81.3% |
7.4% |
1.3% |
1.3% |
|
Mombasa |
119 |
77.6% |
6.8% |
110 |
84.0% |
7.0% |
6.4% |
0.2% |
|
Kisumu |
101 |
74.6% |
6.4% |
108 |
79.7% |
7.0% |
5.1% |
0.6% |
|
Eldoret |
131 |
80.8% |
6.3% |
132 |
86.1% |
6.6% |
5.3% |
0.3% |
|
Mount Kenya |
128 |
81.7% |
7.9% |
138 |
56.7% |
5.3% |
(25.0%) |
(2.6%) |
|
Average |
118 |
78.4% |
6.8% |
122 |
77.3% |
6.8% |
(1.1%) |
0.0% |
Source: Cytonn Research
Nairobi was the best performing region with an average rental yield of 7.8% in 2022, 1.0% points higher than the market average of 6.8%, driven by the increased rental and occupancy rates which came in at Kshs 173 per SQFT and 75.9%, respectively in 2022, from Kshs 168 per SQFT and 75.8%, respectively, in 2021. On the other hand, Mount Kenya was the least performing region with the average rental yield having declined by 2.6% points to 5.3% in 2022, from 7.9% in 2021 as a result of the additional Meru Greenwood Mall which hindered the overall occupancy rate and yield. Notably, Nakuru was the most improved region, attributable to the improved economic performance following its elevation into a city in December 2021. This saw an increase in the rental yield by 1.3% points to 7.4%, from 6.1% recorded in 2021.
In the Nairobi Metropolitan Area (NMA), investment opportunities lie in Kilimani, Westlands, and, Karen which were the best performing nodes with average rental yields of 9.7%, 9.0% and 8.9%, respectively, compared to the overall market average of 7.8%. The remarkable performance was driven by the presence of quality retail spaces fetching prime rents and yields. Additionally, superior locations containing affluent residents with a high consumer purchasing power, and adequate infrastructure supported the performance. However, Westlands recorded the largest decline in the average rental yield, having declined by 0.7% points, from 9.7% in 2021 due to the additional mall supply which hindered the optimum performance.
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
|
Kenya Retail Sector Outlook 2022 |
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|
Sentiment 2021 |
Sentiment 2022 |
2021 Outlook |
2022 Outlook |
|
|
Retail Space Supply |
Nairobi, Kisumu, Uasin Gishu and Nakuru were the most oversupplied areas by 3.0 mn, 0.3 mn, 0.1 mn and 0.1 mn SQFT of space, respectively while areas such as Kiambu and Mt Kenya regions were under supplied by 0.8 mn and 0.7 mn SQFT, respectively |
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 under supplied by 0.5 mn SQFT. We expect the supply to further increase particularly in Nairobi with the addition of malls such as Ojijo Properties |
Neutral |
Positive |
|
Retail Space Demand |
Performance of cities such as Nairobi, Kisumu, Uasin Gishu and Nakuru continued to be affected by the slow absorption rates of the retail spaces due to the existing demand that doesn’t match the higher supply, which was also expected to increase with the additional spaces such as the Imaara mall along Mombasa road, Britam Mall in Kilimani, and the Beacon Mall in Nairobi CBD |
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 |
Neutral |
Neutral |
|
Retail Market Performance |
Kenyan retail sector performance recorded a 0.2% increase in the average rental yield to 6.8% in 2021, from 6.7% in 2020. Average occupancy rates and rental rates also realized an increase of 1.8% points and 2.2% points, respectively, to 78.4% and Kshs 117.8 per SQFT in 2021 Mount Kenya and Nairobi were the best performing regions with the average rental yield coming in at 7.9% and 7.5%, respectively, against the market average of 6.8% We expected to see increased market activity with the expansion efforts by local retailers such as Naivas taking up space left by troubled retailers such as Tuskys |
Kenyan retail sector performance on 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, driven by the increased rental and occupancy rates which came in at Kshs 173 per SQFT and 75.9%, 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 |
Neutral |
Neutral |
|
Our outlook for the Kenya retail market remains NEUTRAL with factors such as the e-commerce strategy and high construction costs expected to impede the optimum performance of the sector. However, the increasing foreign investor confidence in the Kenyan retail market, rapid infrastructure developments, retailers aggressively taking up retail spaces, and, positive demographics are expected to cushion the sector’s performance |
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For more details, see the Cytonn Kenya Retail report 2022 here.
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. We are 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. We currently have over Kshs 82.0 billion of investments and projects under mandate, primarily in real estate.
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 of real estate projects.
For more information, kindly contact:
Teresiah W. King’ara
PR and Communications
+254 704 597 107
Email: tkingara@cytonn.com
