NAIROBI, KENYA, July 1st, 2019
Cytonn Real Estate, the development affiliate of Cytonn Investments, have released their H1’2019 real estate market review, highlighting the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and hence, total investor returns. According to the report, in H1’2019, the real estate sector recorded subdued performance in H1’2019, with the office and retail sector recording a decline in average yields by 0.3% and 0.8% points to 7.8% and 8.2% in H1’2019 from 8.1% and 9.0%, respectively, in FY’2018, while the residential sector recorded a marginal 0.2% points appreciation in average yields to 4.9% in H1’2019 from 4.7% in FY’2018. The performance was constrained by (i) oversupply in selected sectors such as the commercial office and retail sectors with a surplus of 5.2mn SQFT and 2.0mn SQFT, respectively, as at 2018, and (ii) inaccessibility of financing by both developers and off-takers.
Residential sector was the only sector to record an increase in yields, with Ruaka topping the rank in terms of yields:
|
No. |
Residential Neighbourhood |
Price per SQM (Kshs) |
Rent per SQM (Kshs) |
Occupancy |
Total Return |
|
1 |
Ruaka- Apartments |
98,098 |
454 |
91.9% |
8.0% |
|
2 |
Langata- Apartments |
97,012 |
544 |
83.4% |
6.8% |
|
3 |
Kitengela- Apartments |
60,124 |
341 |
76.3% |
6.6% |
|
4 |
Loresho- Detached Units |
146,540 |
575 |
94.6% |
6.2% |
|
5 |
Thindigua- Apartments |
99,270 |
499 |
88.4% |
6.1% |
|
6 |
Ruiru- Detached Units |
99,064 |
353 |
79.6% |
6.0% |
|
7 |
Riverside – Apartments |
135,813 |
737 |
76.2% |
5.9% |
|
8 |
Runda- Detached Units |
234,697 |
888 |
83.8% |
5.8% |
|
9 |
Runda Mumwe- Detached Units |
158,932 |
662 |
83.6% |
5.8% |
|
10 |
Loresho- Apartments |
113,122 |
479 |
95.4% |
5.7% |
|
11 |
South C- Apartments |
99,059 |
555 |
88.1% |
5.7% |
|
12 |
Rongai- Apartments |
63,064 |
350 |
68.5% |
5.7% |
|
13 |
Kilimani- Apartments |
121,845 |
852 |
76.8% |
5.5% |
|
14 |
Westlands- Apartments |
145,744 |
665 |
80.4% |
5.4% |
|
15 |
Imara Daima- Apartments |
63,203 |
354 |
90.0% |
5.4% |
|
16 |
Dagoretti- Apartments |
89,807 |
627 |
88.7% |
5.1% |
|
17 |
Athi River- Detached Units |
92,054 |
406 |
79.6% |
5.0% |
|
18 |
Syokimau- Apartments |
59,242 |
289 |
88.2% |
4.9% |
|
19 |
Karen- Detached Units |
205,087 |
659 |
76.6% |
4.8% |
|
20 |
Ngong- Detached Units |
64,843 |
238 |
72.8% |
4.8% |
|
21 |
Parklands- Apartments |
123,146 |
744 |
85.7% |
4.8% |
|
22 |
Ngong Road- Apartments |
99,800 |
508 |
87.2% |
4.7% |
|
23 |
Kitengela- Detached Units |
73,919 |
446 |
66.1% |
4.3% |
|
24 |
South C- Detached Units |
120,928 |
494 |
92.5% |
3.8% |
|
25 |
Redhill- Detached Units |
105,218 |
367 |
77.5% |
3.6% |
|
26 |
Kitisuru- Detached Units |
223,310 |
903 |
83.3% |
3.3% |
|
27 |
Lower Kabete- Detached Units |
165,043 |
467 |
89.5% |
3.3% |
|
28 |
Langata- Detached Units |
142,183 |
556 |
97.2% |
3.0% |
|
29 |
Rosslyn- Detached Units |
178,237 |
757 |
84.3% |
1.7% |
|
30 |
Juja- Detached Units |
73,182 |
260 |
61.9% |
0.7% |
|
|
Average |
118,386 |
534 |
82.9% |
4.9% |
“We retain a NEUTRAL outlook for the real estate sector mainly constrained by increased supply in the market and limited access to financing for both developers and off-takers. The real estate sector, however, has pockets of value in themes such as housing for lower-middle to low-income earners in the residential sector and in differentiated concepts such as serviced offices and offices in mixed-use developments (MUDs) that attract average rental yields of upto 13.4% and 8.2%, respectively,” said Juster Kendi, Research Analyst at Cytonn
Below is a Summary of the H1’2019 sectorial performance:
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook
|
Asset Class |
Real Estate Sector Performance H1’ 2019 |
|
Residential Sector |
Apartments performed better in H1’2019 recording an annual price appreciation and uptake of 0.7% and 22.4%, respectively, with average total returns of 5.5%, 5.5%, and 6.3% for the upper mid-end, lower mid-end suburbs, and satellite towns, respectively. Detached units recorded an annual appreciation and uptake of 0.2% and 19.7%, respectively, with average total returns of 3.8%, 4.5%, and 4.1%, for high-end, upper mid-end, and satellite towns, respectively. |
|
The sector presents an opportunity in affordable housing in satellite towns such as in Ruaka and Thindigua with average returns of 8.0% and 6.1%, respectively, owing to incentives by the National Government and increased national budget allocation to affordable housing by 61.5% to Kshs 10.5 bn in FY 2019/2020, from Kshs 6.5 bn in 2018/2019. |
|
|
Commercial Office Sector |
The commercial office sector performance declined, recording 0.3% and 2.3% points decline in average rental yields and occupancy rates, to 7.8% and 81.0% in H1’2019, from 8.1% and 83.3%, respectively in FY’2018. Asking rents decreased by 5.3% to an average of Kshs 96.6 per SQFT in H1’2019, from Kshs 102 per SQFT in FY’2018, |
|
Pockets of value remain, in differentiated concepts such as serviced offices in Westlands & Kilimani and offices in mixed-use developments (MUDs) that attract yields of 13.4% and 8.2%, respectively. |
|
|
Retail Sector |
The retail sector’s performance softened, recording a 0.8% points decline in rental yield to 8.2% in H1’ 2019 from 9.0% in FY’ 2018. Occupancy rates dropped by 3.5% points from 79.1% in FY’ 2018 to 75.6% in H1’ 2019 and average rents declined by 4.9% to Kshs 170.0/ SQFT/month from Kshs 178.2/ SQFT/month in FY’2018. The decline in rent is attributable to property managers’ adoption of innovative pricing models such as reducing rental charges and rent-free grace periods of up to 6 months in order to attract tenants, |
|
Our outlook for the sector is neutral as the sector continues to attract both local and international retailers to cushion the retail real estate sector performance through increased occupancy rates. The investment opportunity is in County Headquarters in markets such as Mombasa and Mt. Kenya Regions that have retail space demand of 0.3 mn and 0.2 mn SQFT, attractive yields at 8.3% and 9.9% and occupancy rates at 96.3% and 84.5%, respectively. |
|
|
Hospitality Sector |
The sector continues to be attractive driven by i) the improving air transport operations, ii) continued marketing of Kenya as an experience destination, iii) improved security, and iv) political stability, which have continued to boost tourists’ confidence in the country and thus making it a preferred travel destination for both business and holiday travellers, |
|
The investment opportunity in the sector lies in; i) serviced apartments in areas such as Kilimani and Westlands markets with rental yields of above 10.0%, and ii) conference centres situated in and away from Nairobi, given the growing number of local conferences and delegates. |
|
|
Land Sector |
The land sector recorded a 0.5% y/y decline in the asking prices, 4.3% points decline compared to the 3.8% growth rate in H1’2017, attributed to an overall slowdown in real estate investment activities. |
|
The investment opportunity is in satellite towns such as Ruiru and Limuru, which registered a 4.1% annual capital appreciation on average, attributed to the relatively high demand for land in these areas, fuelled by the affordable housing initiative in addition to satellite towns acting as Nairobi’s dormitory with majority of the population moving away from the Central Business District. |
|
|
Listed Real Estate |
The Stanlib Fahari Income-REIT closed the first half of the year at Kshs 9.2 per share, 14.4% lower than the year’s opening price of Kshs 10.8, and 54.0% from its issue price of Kshs 20. The REIT has been performing poorly mainly due to minimal acceptance by real estate investors and a general poor institutional framework inhibiting its growth, |
|
Our outlook for Stanlib’s listed real estate is neutral supported by the improved dividend yield of 8.1% as at 2018, in line with the real estate performance. |
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 billion of real estate projects.
For more information, kindly contact:
Egla Kerubo Kamuzu Banda
PR and Communications Tim-Sky Media Services
+254 714 407 865 +254 723 85 9690
Email: egkerubo@cytonn.com kamuzu.banda@tim-skymedia.com
Cytonn Investments Management Limited, 6th Floor, The Chancery, Valley Road, P.O. Box 20695 – 00200, Nairobi, Kenya.
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