Nairobi, Kenya, July 09, 2018
Cytonn Real Estate, the development affiliate of Cytonn Investments, today released its Nairobi Metropolitan Area Residential Report – 2017/2018, ranking Kilimani, Westlands and Thindigua as the best areas for apartment development; and Karen, Runda Mumwe and Ruiru as the best areas for detached units’ development. The report analyzes the current state of the residential real estate sector in Kenya in terms of supply, demand, drivers, challenges, and performance. According to the report, the sector recorded total returns of 8.2% p.a compared to last year’s 9.4%, attributable to the protracted electioneering period in 2017, as well as tight access to financing as a result of the interest rate caps. However, select markets recorded relatively high returns, such as Kilimani with 13.9% total returns (total return is made up of rental yield plus capital appreciation).
The report also ranked the most attractive investment opportunities out of the studied 35 sub-markets in Nairobi Metropolitan area, based on total returns, uptake, infrastructure, amenities and distance from key business nodes. The report is themed “Question of Where, Amidst Sluggish Growth.” According to the report, the residential sector recorded total annual returns of 8.2% in 2017/18, a 1.2% points decline from the 9.4% total returns recorded in 2017; the average price appreciation was 2.8% with an average rental yield of 5.4%. Notably, price appreciation declined by 1.0% points from 3.8% in 2017 to 2.8% for the period under review, and this was attributed to the effect of last year’s elections and end buyer financing challenges, which has resulted in price stagnation.
“The real estate sector is still attractive for investment, supported by positive fundamentals such as an attractive demographic profile, increasing household incomes, and a stable macroeconomic environment,” said Johnson Denge, Senior Manager, Regional Markets at Cytonn. However, he noted that with surplus supply in selected sub-markets, investors ought to carry out market research and trend analysis in order to identify specific market niches.
Speaking during the release of the report, Cytonn Real Estate’s Senior Research Analyst, Patricia Wachira, noted that “Despite the decline, areas such as Kilimani, with good infrastructure and easy access to main business nodes, recorded double-digit returns of up to 13.9% p.a, as they continue to attract interest from investors and the expanding middle class”
|
Change in Residential Sector Performance - 2017/2018 |
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|
Metric |
2017/18 |
2016/2017 |
Y/Y Change |
|
Annual Uptake |
23.3% |
23.6% |
(0.3% points) |
|
Capital Appreciation |
2.8% |
3.8% |
(1.0% points) |
|
Rental Yield |
5.4% |
5.6% |
(0.2% points) |
|
Total Returns |
8.2% |
9.4% |
(1.2% points) |
|
Source: Cytonn Research |
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Patricia Wachira also stated that “Apartments recorded relatively high returns with an average of 8.7% p.a, 0.5% points higher compared to the overall residential market average of 8.2%. This is as apartments are more affordable, by 49.1% on average, compared to detached units.” She added that “Selected markets such as Kilimani, Upper Kabete, Thindigua, Ruaka and South B/C recorded double-digit total returns of 13.9%,11.9%, 11.2%, 11.1% and 10.1%, respectively, with the sub-markets being boosted by good infrastructure, and accessible locations in relation to places where most people work, such as the Nairobi CBD, Upperhill, and Westlands.”
Ms. Wachira also noted that “Detached units recorded subdued returns in 2017/2018 with average total returns of 7.6% p.a, 0.6% points lower compared to the market average of 8.2%. There was slower price appreciation at 2.7% in 2017/18 compared to 3.9% in 2017, attributable to increased supply and thus prices have remained relatively flat to attract buyers; rental yields remained fairly stable, dropping by 0.1% points, as developers stabilize their rents in order to retain occupants.” She added that, Ruiru had the highest returns in the detached category, with total returns of 11.7% p.a.
In terms of investment opportunity for developers, the report noted the best places to invest in apartment units are Kilimani, Westlands, Thindigua, Ruaka, Upper Kabete and South B/C, driven by relatively high uptake averaging at 26.6%, and good returns ranging from 10.1% to 13.9%; while for detached units, the best areas to invest in are Karen, Runda Mumwe, Ruiru, South B/C, Kitisuru and Ruiru driven by the relatively high returns ranging from 8.8% to 11.7% p.a, uptake averaging at 23.8%, and availability of development land, which makes it affordable for developers to invest in these areas.
The report noted that the factors that will continue to drive the residential sector are (i) an attractive demographic profile with a relatively high population growth and urbanization rate at 2.6% p.a and 4.4% p.a, respectively compared to the global average of 1.2% and 2.1%, respectively, (ii) increased household incomes, (iii) improving infrastructure, and (iv) government incentives and initiatives such as the inclusion of Affordable Housing as part of the Big 4 Agenda. “Incentives such as the 50.0% corporate tax cuts for developers of at least 100 affordable units annually, scrapping of NEMA and NCA fees and provision of public land for development are likely to encourage the involvement of the private sector in provision of Affordable Housing, and thus we are likely to see redirected efforts towards supply for the lower-middle and low-income market segments” said Johnson Denge during the report release. The key challenges in the sector remain to be increasing land costs, inadequate infrastructure in some areas and limited access to funding in the private sector for both developer and home-buyer financing.
Highlights of the report and tables below are as follows:
- Apartments registered higher returns to investors of on average 8.7% p.a, 0.5% points higher than the residential market average of 8.2%. This is attributable to high demand for high rise units, mainly due to their affordability; on average apartments are 49.1% cheaper compared to detached units
- For detached units, Ruiru and Kitengela delivered the best returns of 11.7% an 11.0%, respectively, compared to the detached units’ market average of 7.6%
- For apartments, Kilimani delivered the best returns, with 13.9%, followed by Upper Kabete, Thindigua and Ruaka with 11.9%, 11.2% and 11.1%, respectively, compared to the apartments’ market average of 8.7%
The report is available online: (Link here)
Table 1: Nairobi Metropolitan Area Residential Performance 2017/2018 by Typology
|
(All Values in Kshs Unless Stated Otherwise) |
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Nairobi Metropolitan Area Residential Sector Performance by Typologies 2017/18 |
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|
Typology |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales (%) |
Average Rental Yield (%) |
Y/Y Average Price Appreciation (%) |
Total Annual Returns (%) |
|
Apartments |
99,052 |
463 |
24.0% |
5.8% |
2.9% |
8.7% |
|
Detached |
140,601 |
577 |
22.6% |
4.9% |
2.7% |
7.6% |
|
Average |
119,826.7 |
519.9 |
23.3% |
5.4% |
2.8% |
8.2% |
|
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Source: Cytonn Research
Table 2: Detached Units: High-End Performance
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(All figures in Kshs unless stated otherwise) |
||||||
|
Nairobi Metropolitan Area Detached Units Performance 2017/2018 – High-End Suburbs |
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|
Location |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales(%) |
Average Rental Yield(%) |
Average Price Appreciation(%) |
Average Total Returns(%) |
|
Lower Kabete |
174,963 |
491 |
21.4% |
3.4% |
7.5% |
10.8% |
|
Kitisuru |
250,983 |
1,007 |
22.6% |
4.7% |
5.4% |
10.1% |
|
Karen |
194,341 |
799 |
27.7% |
4.7% |
4.0% |
8.8% |
|
Runda |
188,098 |
772 |
23.2% |
5.0% |
2.7% |
7.7% |
|
Roselyn |
164,125 |
808 |
20.8% |
5.9% |
(1.9%) |
3.9% |
|
Average |
194,502 |
776 |
23.1% |
4.7% |
3.5% |
8.3% |
|
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Source: Cytonn Research
Table 3: Detached Units: Upper Middle Performance
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(All figures in Kshs unless stated otherwise) |
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|
Nairobi Metropolitan Area Detached Units Performance 2017/2018 - Upper Mid-End Suburbs |
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|
Location |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales (%) |
Average Rental Yield(%) |
Average Price Appreciation(%) |
Average Total Returns(%) |
|
Langata |
129,107 |
448 |
21.6% |
4.3% |
4.7% |
9.1% |
|
Runda Mumwe |
144,346 |
687 |
24.3% |
5.8% |
2.8% |
8.7% |
|
South B/C |
131,394 |
582 |
22.3% |
4.5% |
3.5% |
8.0% |
|
Spring Valley |
167,940 |
504 |
21.2% |
4.3% |
3.5% |
7.7% |
|
Lavington |
180,498 |
658 |
16.7% |
4.4% |
3.1% |
7.5% |
|
Loresho |
150,499 |
827 |
25.0% |
6.6% |
(0.6%) |
6.0% |
|
Ridgeways |
150,422 |
822 |
20.8% |
5.5% |
(0.3%) |
5.2% |
|
Average |
150,601 |
647 |
21.7% |
5.1% |
2.4% |
7.5% |
|
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Table 4: Detached Units: Lower Middle Performance
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(All figures in Kshs unless stated otherwise) |
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|
Nairobi Metropolitan Area Detached Units Performance 2017/2018 - Lower Mid-End Suburbs |
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|
Location |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales (%) |
Average Rental Yield (%) |
Average Price Appreciation (%) |
Average Total Returns(%) |
|
Ruiru |
91,591 |
332 |
23.6% |
5.1% |
6.6% |
11.7% |
|
Kitengela |
70,558 |
309 |
22.6% |
4.8% |
6.2% |
11.0% |
|
Rongai |
80,145 |
305 |
23.8% |
4.6% |
4.1% |
8.7% |
|
Ruai |
49,407 |
265 |
18.8% |
6.6% |
0.0% |
6.6% |
|
Ngong |
65,125 |
247 |
23.4% |
4.5% |
2.1% |
6.6% |
|
Donholm & Komarock |
86,198 |
367 |
22.8% |
5.2% |
1.1% |
6.3% |
|
Athi River |
91,948 |
295 |
22.6% |
3.7% |
2.4% |
6.2% |
|
Juja |
81,844 |
277 |
23.3% |
5.1% |
1.1% |
6.1% |
|
Redhill |
89,979 |
327 |
19.2% |
4.2% |
1.6% |
5.8% |
|
Syokimau/Mlolongo |
73,333 |
340 |
20.0% |
5.7% |
0.0% |
5.7% |
|
Thika |
67,875 |
326 |
22.3% |
4.7% |
0.3% |
5.1% |
|
Imara Daima |
72,417 |
318 |
26.9% |
5.1% |
(1.0%) |
4.2% |
|
Average |
76,702 |
309 |
22.9% |
5.0% |
2.0% |
7.0% |
|
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Source: Cytonn Research
Table 5: Apartments: Upper Middle Performance
|
(All figures in Kshs unless stated otherwise) |
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|
Nairobi Metropolitan Area Apartments Performance 2017/2018 - Upper Mid-End Performance |
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|
Location |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales (%) |
Average Rental Yield(%) |
Average Price Appreciation(%) |
Average Total Returns(%) |
|
Kilimani |
131,594 |
621 |
25.6% |
6.1% |
7.8% |
13.9% |
|
Riverside |
121,295 |
508 |
21.7% |
5.4% |
3.8% |
9.3% |
|
Spring Valley |
144,169 |
647 |
24.1% |
5.9% |
3.1% |
9.0% |
|
Loresho |
109,426 |
558 |
23.2% |
6.0% |
2.7% |
8.7% |
|
Upperhill |
141,905 |
593 |
23.7% |
5.2% |
3.4% |
8.6% |
|
Westlands |
132,128 |
636 |
26.1% |
6.0% |
2.3% |
8.3% |
|
Kileleshwa |
124,549 |
629 |
23.6% |
6.0% |
1.0% |
7.0% |
|
Parklands |
113,908 |
641 |
25.8% |
7.3% |
(1.3%) |
5.9% |
|
Average |
127,372 |
604 |
24.2% |
6.0% |
2.9% |
8.9% |
|
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Source: Cytonn Research
Table 6: Apartments: Lower Middle Suburbs Performance
|
(All figures in Kshs unless stated otherwise) |
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|
Nairobi Metropolitan Area Apartments Performance 2017/2018 - Lower Mid-End Suburbs |
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|
Location |
Average Price Per SQM |
Average Rent Per SQM |
Average Annual Sales(%) |
Average Rental Yield(%) |
Average Price Appreciation(%) |
Average Total Returns(%) |
|
Upper Kabete |
86,344 |
429 |
27.4% |
6.3% |
5.6% |
11.9% |
|
South B & C |
107,819 |
510 |
26.5% |
5.7% |
4.4% |
10.1% |
|
Donholm & Komarock |
75,072 |
374 |
20.3% |
6.0% |
3.9% |
9.9% |
|
Ngong Road |
99,630 |
453 |
25.6% |
5.9% |
4.0% |
9.9% |
|
Imara Daima |
74,232 |
381 |
26.2% |
6.3% |
3.0% |
9.4% |
|
Kahawa West |
82,166 |
416 |
22.9% |
6.2% |
1.8% |
8.1% |
|
Dagoretti |
98,038 |
482 |
22.5% |
6.2% |
1.7% |
7.8% |
|
Thome |
124,554 |
297 |
22.3% |
2.8% |
3.9% |
6.7% |
|
Langata |
107,374 |
462 |
23.2% |
5.3% |
0.3% |
5.6% |
|
Average |
95,025 |
423 |
24.1% |
5.6% |
3.2% |
8.8% |
|
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Source: Cytonn Research
Table 7: Apartments: Lower Middle Satellite Towns Performance
|
(All figures in Kshs unless stated otherwise) |
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|
Nairobi Metropolitan Area Apartments Performance 2017/2018 - Lower Mid-End Satellite Towns |
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|
Location |
Average of Price Per SQM |
Average of Rent per SQM |
Average of Annual Sales (%) |
Average of Rental Yield (%) |
Average of Price Appreciation (%) |
Average of Total Return (%) |
|
Thindigua |
92,603 |
454 |
28.2% |
5.9% |
5.3% |
11.2% |
|
Ruaka |
101,163 |
440 |
25.6% |
5.3% |
5.8% |
11.1% |
|
Ruiru |
89,918 |
469 |
20.6% |
6.3% |
3.7% |
9.9% |
|
Athi River |
63,395 |
351 |
25.4% |
6.3% |
2.4% |
8.7% |
|
Rongai |
70,983 |
338 |
23.7% |
5.9% |
2.8% |
8.7% |
|
Lower Kabete |
86,026 |
415 |
24.3% |
5.8% |
2.6% |
8.4% |
|
Kitengela |
67,018 |
327 |
19.4% |
6.4% |
1.8% |
8.2% |
|
Kikuyu |
76,046 |
336 |
22.3% |
5.3% |
2.7% |
8.1% |
|
Syokimau/Mlolongo |
75,313 |
299 |
22.0% |
5.0% |
1.8% |
6.8% |
|
Thika |
49,155 |
284 |
25.0% |
6.1% |
0.3% |
6.4% |
|
Juja |
50,728 |
259 |
23.7% |
6.1% |
0.0% |
6.1% |
|
Average |
74,759 |
361 |
23.7% |
5.9% |
2.7% |
8.6% |
|
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Source: Cytonn Research
Table 8: Opportunity Criteria
|
Residential Market Opportunity |
|||
|
Weighted Annual Uptake (WAU) |
<0.2% |
0.2%-0.4% |
>0.4% |
|
Points |
1 |
2 |
3 |
|
Average Returns |
<5% |
5-10% |
>10% |
|
Points |
1 |
2 |
3 |
|
Availability of Amenities |
Low (supermarket) |
Average (Neighbourhood Community + Social Amenities) |
High (Regional Mall, Social Amenities) |
|
Points |
1 |
2 |
3 |
|
Infrastructure |
Poor |
Average |
Good |
|
Points |
1 |
2 |
3 |
|
Distance from Main Business Nodes |
>28 km |
15km-28km |
Within 14km radius of NRB CBD |
|
Points |
1 |
2 |
3 |
Table 9: Apartments: Top 5 Areas to Invest
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Nairobi Metropolitan Area Investment Opportunity - Top 5 Areas to Invest for Apartments |
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|
Location |
Distance from Main Business Node |
Amenities |
Infrastructure |
Weighted Annual Uptake |
Returns |
Availability of Development Land |
Total Points |
Rank |
|
Kilimani |
3.0 |
3.5 |
3.5 |
2.0 |
3.0 |
2.0 |
2.7 |
1 |
|
Westlands |
3.0 |
3.5 |
3.5 |
3.0 |
2.0 |
1.0 |
2.6 |
2 |
|
Thindigua |
3.0 |
2.0 |
2.0 |
2.0 |
3.0 |
2.0 |
2.4 |
3 |
|
Ruaka |
2.0 |
2.0 |
2 |
2.0 |
3.0 |
2.0 |
2.4 |
4 |
|
Upper Kabete |
3.0 |
2.0 |
2 |
2.0 |
3.0 |
1.0 |
2.3 |
5 |
|
South B & C |
3.0 |
2.0 |
2.0 |
2.0 |
3.0 |
1.0 |
2.3 |
5 |
|
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Source: Cytonn Research
Table 10: Detached: Top 5 Areas to Invest
|
Nairobi Metropolitan Area Investment Opportunity- Top 5 Areas to Invest for Detached Units |
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|
Location |
Distance from main Business Node |
Amenities |
Infrastructure |
Weighted Annual Uptake |
Average Returns |
Availability of Development Land |
Total Points |
Rank |
|
Karen |
3.0 |
3.0 |
2.0 |
3.0 |
2.0 |
3.0 |
2.6 |
1 |
|
Runda Mumwe |
3.0 |
2.0 |
1.5 |
2.0 |
2.0 |
3.0 |
2.2 |
2 |
|
Ruiru |
1.0 |
2.0 |
2.0 |
2.0 |
2.0 |
3.0 |
2.1 |
3 |
|
South B/C |
3.0 |
1.0 |
1.0 |
3.0 |
2.0 |
1.0 |
2.1 |
4 |
|
Kitisuru |
3.0 |
1.0 |
2.0 |
1.0 |
3.0 |
2.0 |
2.1 |
4 |
|
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