Cytonn Real Estate, the development affiliate of Cytonn Investments, has released the Nairobi Metropolitan Area (NMA) Mixed-Use Developments (MUDs) Report 2019 highlighting the performance of mixed-use developments within the Nairobi Metropolitan Area in 2019. The report focused on the performance of mixed-use developments based on rental yields, occupancy rates, as well as annual uptake, with the research conducted on eight nodes within the Nairobi Metropolitan Area (Westlands, Kilimani, Karen, Ngong Road, Thika Road, Kiambu & Limuru Road, Mombasa Road and Eastlands).
According to the report, Mixed-Use Developments (MUDs) recorded a decline in performance, with a 0.1% point y/y drop in average yields to 7.3% in 2019 from 7.4% in 2018, attributed to a decline in effective demand and constrained consumer spending due to a tough financial environment.
Kilimani was the best performing node recording average rental yields of 9.1% with the retail and office spaces recording rental yields of 9.6% and 8.4%, respectively, 1.2% points and 0.5% points higher than the overall MUDs average of 8.4% and 7.9%, respectively. The performance was attributed to premium rental rates charged as the area serves a prime commercial and affluent neighbourhood hosting a large portion of Nairobi’s high-end and upper-middle-class population. Mombasa Road and Eastlands were the worst performing areas recording rental yields of 5.7% and 5.5%, respectively attributed to the low rental charges as a result of competition from informal Mixed-Use Developments.
The table below shows the summary of performance:
|
Summary of the 2019 Performance of the Nodes within NMA |
|
|
Location |
Avg. MUD yield |
|
Kilimani |
9.1% |
|
Limuru Rd |
8.0% |
|
Karen |
8.2% |
|
UpperHill |
7.4% |
|
Westlands |
7.4% |
|
Thika Rd |
6.0% |
|
Msa Rd |
5.7% |
|
Eastlands |
5.5% |
|
Average |
7.3% |
Source: Cytonn Research 2019
“Despite the 0.1% point drop in rental yields performance to 7.3% in 2019 from 7.4% in 2018, Mixed-Use Developments still offer an attractive investment as they provide diversified revenue streams for property owners improving the overall return on investment,” noted Cytonn Real Estate’s Research Analyst, Joseph Wanga. “However, we expect investors’ returns to be dependent on the composition of mixed-use concepts due to sectors such as retail and office having an oversupply of 2.8 mn SQFT and 5.2 mn SQFT, respectively as at 2018.”
The main drivers of the mixed-use developments concept include;
-
Positive demographics as Kenya’s urban population continues to expand at an annual rate of 4.3%, compared to the 2.0% global average,
-
Relatively higher developer returns compared to single-use office and retail spaces in the wake of an oversupply in majority of the commercial nodes within Nairobi,
-
Continued foreign investments into Mixed-Use Developments, and,
-
The continued growth of the middle class population leading to increased demand for convenient spaces that incorporate residential, office and social themes.
According to the report, the investment opportunity within the Nairobi Metropolitan Area is in areas with high returns such as Kilimani and Limuru Road, which recorded rental yields of 9.1% and 8.0%, respectively, above the MUDs market average of 7.3%.
“The outlook for Mixed-Use Developments (MUDs) is neutral mainly due to attractive returns compared to single-use themes despite oversupply in the retail and office sectors. The investment opportunity for the concept lies in incorporating differentiated concepts such as serviced apartments and shared offices which provide attractive returns of 6.4% and 13.5%, respectively, compared to the unserviced apartments and office performance of 5.1% and 7.9%, respectively, as at Q3’2019,” said Wacu Mbugua, a Research Analyst at Cytonn.
Appendix
The Summary of performance was as shown below:
|
NMA Mixed-Use Developments Market Performance by Nodes 2019 |
|||||||||||||
|
Retail Performance |
Office Performance |
Residential Performance |
|||||||||||
|
Location |
Price/SQFT |
Rent/SQFT |
Occup. (%) |
Rental Yield (%) |
Price/ SQFT |
Rent/SQFT |
Occup. (%) |
Rental Yield (%) |
Price/SQM |
Rent/SQM |
Annual Uptake % |
Rental Yield % |
Avg. MUD yield |
|
Kilimani |
17,702 |
172 |
82.6% |
9.6% |
13,770 |
126 |
74.8% |
8.4% |
9.1% |
||||
|
Limuru Rd |
22,500 |
223 |
72.0% |
8.6% |
13,500 |
130 |
72.0% |
8.3% |
177,935 |
842 |
25.0% |
5.7% |
8.0% |
|
Karen |
23,333 |
163 |
85.0% |
7.3% |
13,380 |
137 |
86.0% |
10.6% |
215,983 |
821 |
26.7% |
4.6% |
8.2% |
|
UpperHill |
15,552 |
127 |
71.3% |
7.0% |
12,673 |
100 |
78.7% |
7.4% |
7.4% |
||||
|
Westlands |
15,876 |
172 |
72.8% |
9.6% |
12,917 |
113 |
68.7% |
7.1% |
204,603 |
810 |
31.0% |
4.8% |
7.4% |
|
Thika Rd |
26,250 |
200 |
84.5% |
8.3% |
13,890 |
128 |
71.0% |
8.0% |
161,910 |
640 |
30.1% |
4.8% |
6.0% |
|
Msa Rd |
19,200 |
150 |
68.0% |
6.4% |
13,200 |
100 |
52.0% |
4.7% |
171,304 |
722 |
23.0% |
5.1% |
5.7% |
|
Eastlands |
20,000 |
132 |
72.0% |
5.7% |
12,000 |
100 |
68.0% |
6.8% |
81,717 |
350 |
20.0% |
5.5% |
5.5% |
|
Average |
18,846 |
167 |
77.3% |
8.4% |
13,227 |
118 |
73.4% |
7.9% |
167,909 |
689 |
26.5% |
5.4% |
7.3% |
|
* Mixed-Use Developments in Kilimani and Upper Hill areas had no residential spaces |
|||||||||||||
Source: Cytonn Research 2019
Compared to the respective single-use retail, commercial office and residential themes, the Mixed-Use Developments (MUDs) recorded higher returns as follows:
-
Retail – Retail spaces within Mixed-Use Developments (MUDs) recorded rental yields of 8.4%, 0.4% points higher than the single-use retail market average of 8.0% as at Q3’2019,
-
Office – Office spaces within Mixed-Use Developments recorded rental yields of 7.9%, 0.2% points higher than the single-use office market average of 7.7% as at Q3’2019, and
-
Residential – Residential spaces within Mixed-Use Developments recorded average rental yields of 5.4% in 2019, 0.4% points more than the residential market rental yields of 5.0% as at Q3’2019.
The report is available online: (Link here)
