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4 July, 2021
Press Release

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their H1’2021 Markets Review, a report that highlights key performance and activities of real estate and real estate related sectors. According to the report, the real estate sector recorded increased activities following the reopening of the economy which saw an improved business environment. The residential sector recorded improvement in performance with average total returns registering a 0.8% points half-yearly increase to 5.5%, from 4.7% recorded in FY’2020. The commercial office sector recorded a 0.1% decline in rental yields to 6.9% in H1’2021, from 7.0% recorded in FY’2020. The retail sector recorded a 0.1% improvement in rental yields to 7.6% in H1’2021, from 7.5% recorded in FY’2020. The land sector continued to show resilience despite the pandemic recording an overall annualized capital appreciation of 1.6%.

Some of the factors that supported the improvement of performance in the real estate sector during the period under review include: i) government’s aggressiveness to implement affordable housing and infrastructure projects despite the pandemic, ii) efforts by the Kenya Mortgage Refinance Company (KMRC) together with other financial institutions to provide mortgage loans to Kenyans, iii) local and international retailers’ aggressiveness in taking up prime retail spaces left by troubled retailers, iv) relatively high urbanization and population growth rate, and, v) Launch of the National Land Information Management System (NLIMS) aimed at streamlining land transactions in Nairobi,” stated Fidelis Wanalwenge, a Research Analyst at Cytonn Investments.

However, challenges impeding performance of the sector include; i) partial lockdowns and travel restrictions imposed in the country that affected performance of the hospitality sector which heavily relies on tourism sector,  ii) reduced demand for office spaces as organizations still embrace the remote working strategy, iii) reduced consumer purchasing power attributed to the tough economic condition brought about by the COVID-19 pandemic, iv) the existing oversupply of 2.0 mn SQFT in the retail sector and 7.3mn SQFT in the commercial office sector, and, vi) the existing vacancy rates despite the slight occupancy increase rates for the retail spaces recorded in H1’2021, due to the shift towards online shopping.

In the residential sector, apartments recorded average total returns of 5.6% y/y while detached units recorded an average total returns of 5.4% y/y. Detached units in Ruiru, Kitisuru and, Redhill recorded the highest average y/y returns at 6.6%, 6.5% and, 6.5%, respectively, while apartments in Waiyaki Way, Parklands and, Ruaka recorded the highest average y/y total returns of 8.1%, 7.6% and, 7.5% respectively.

(All Values in Kshs unless stated otherwise)

Detached Units Performance; Top 5 Markets

Area

Average of Price per SQM H1'2021

Average of Rent per SQM H1'2021

Average of Occupancy H1'2021

Average of Uptake H1'2021

Average of Annual Uptake H1'2021

Average of Rental Yield H1'2021

Average of Price Appreciation H1'2021

Average Total Returns H1'2021

Ruiru

79,138

332

83.9%

83.5%

24.9%

5.0%

1.6%

6.6%

Kitisuru

203,113

615

92.5%

90.3%

15.0%

3.8%

2.7%

6.5%

Redhill & Sigona

97,843

446

90.9%

90.9%

15.4%

5.2%

1.3%

6.5%

Syokimau/Mlolongo

75,406

367

75.7%

85.1%

16.8%

4.4%

2.1%

6.5%

Ridgeways

152,100

775

84.5%

86.2%

13.4%

5.2%

1.2%

6.3%

Runda Mumwe

152,949

635

85.2%

80.1%

14.1%

4.3%

2.0%

6.3%

Loresho

148,543

673

87.8%

82.0%

10.7%

4.8%

1.5%

6.3%

Cytonn Research 2021

(All values in Kshs unless stated otherwise)

Apartments Performance; Top 5 Markets

Area

 Average of Price Per SQM H1'2021

 Average of Rent per SQM H1'2021

Average of Occupancy H1'2021

Average of Uptake H1'2021

Average of Annual Uptake H1'2021

Average of Rental Yield H1'2021

Average of Y/Y Price Appreciation H1'2021

Total Returns H1'2021

Waiyaki Way

87,563

520

78.8%

77.9%

21.7%

5.6%

2.5%

8.1%

Parklands

117,472

689

84.8%

83.2%

14.7%

5.6%

2.0%

7.6%

Ruaka

105,633

514

63.7%

76.0%

19.0%

5.5%

2.0%

7.5%

Dagoretti

87,565

514

86.7%

89.7%

17.4%

6.3%

1.1%

7.4%

South C

113,751

598

86.3%

64.1%

14.1%

5.9%

1.2%

7.1%

Cytonn Research 2021

According to the report, Gigiri and Karen were the best performing submarkets in H1’2021 recording rental yields of 8.2% and 7.9%, respectively against a market average of 6.9% attributed to their serene environments hence attracting prime, developments and rental prices, relatively good infrastructure, and low supply of commercial office spaces within the markets.

In the retail sector, Westlands and Karen were the best performing nodes recording average rental yields of 9.7% and 9.5%, respectively compared to the overall market average of 7.6% in H1’2021. The performance is attributed to presence of affluent residents who have a high consumer purchasing power with the areas hosting high end income earners, relatively good infrastructure, and, relatively high occupancy rates of above 80.0% against the market average of 75.7%.

For the land sector, the asking prices for the low-rise areas recorded the highest annual capital appreciation of 4.9% attributable to high demand in the areas. These areas have also remained attractive due to their exclusivity and privacy with the areas being attractive for family units as they are sparsely populated.

With the positive outlook for land sector, negative outlook for the commercial office sector and neutral outlook for the residential, retail, MUDs, hospitality and REITs sectors, our overall outlook for the real estate sector is NEUTRAL with performance expected to be supported by; government aggressiveness on affordable housing initiative, improved infrastructure activities, positive demographics, improved mortgage availability, and improved retail space uptake. However, performance of the sector is likely to be constrained by reduced demand for office and retail spaces due to remote working and online shopping, reduced purchasing power of people due to the tough economic conditions, high mortgage interest rates, and the existing oversupply in the retail and commercial sectors. Below is a summary of the H1’2021 sectorial performance:

Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook

Theme

Thematic Performance and Outlook Q1’2021

Outlook

Residential

  • The residential sector recorded improved performance with average total returns registering a 0.8% points half-yearly increase to 5.5%, from 4.7% recorded in FY’2020, and a 0.4% q/q increase from 5.1% recorded in Q1’2021. The average y/y price appreciation in the residential market came in at 0.6%,  while the average rental yield registered a 0.2% points q/q increase to 4.8% in H1’2021 from 4.7% recorded in Q1’2021

Neutral

  • We expect total returns to investors to improve supported by improved rental rates and capital appreciation of properties
  • The investment opportunity for detached units lies in Ruiru, Kitisuru, Redhill, and Syokimau, while for apartments opportunity lies in Waiyaki way, Parklands and Ruaka, which posted high returns.

Office

  • The commercial office sector recorded 0.1% and 1.9% points decline in the average rental yields and occupancy rates to 6.9% and 76.3% in H1’2021, from 7.0% and 77.7%, respectively in FY’2020, attributed to reduced demand for office spaces and the existing office space oversupply at 7.3 mn SQFT

Negative

  • Investment opportunity lies in Gigiri and Karen which were the best performing submarkets in H1’2021 recording rental yields of 8.2% and 7.9%, compared to a market average of 6.9%

Retail

  • The retail sector performance in H1’2021 recorded a 0.1% rental yield improvement to 7.6% from 7.5% recorded in FY’2020 attributed to the opening of the economy coupled with the aggressive expansion of local and international retailers to take up prime space left by troubled retailers

Neutral

  • We expect the sector to continue registering more developments and activities attributed to opening of the economy coupled with local and international retailers’ aggressiveness to take up space previously occupied by troubled retailers
  • Investment opportunity lies in Westlands and Karen which were the best performing nodes recording average rental yields of 9.7% and 9.5% respectively compared to the overall market average of 7.6%

Mixed-Use Developments (MUDs)

  • Mixed-use developments are expected to continue gaining traction as they offer the live, work and play concept thus convenient for the rising sophisticated middle-income earners with huge demand for exceptional lifestyles

Neutral

  • We expect MUDs to continue gaining traction supported by relatively higher returns to investors compared to single-theme developments, and a diversified portfolio to investors hence risk spread in the case a thematic sector is performing negatively in the market

Hospitality

  • The hospitality sector which heavily relies on tourism sector recorded subdued performance attributed to the partial lockdowns in March coupled with travel bans by UK into Kenya and USA travel advisory against flying into Kenya in April

Neutral

  • We expect the hospitality sector bounce back after being one of the most hit by the Covid-19 pandemic, as evidenced by the increased number of operating hotels and bed occupancies coupled with expected increase in tourist arrivals from the lifting of travel bans, revision of travel restrictions and the government’s efforts to resolve affairs affecting tourism

Land

  • Land sector recorded an overall annualized capital appreciation of 1.6% indicating that land is still considered  a good investment asset,

Positive

  • We expect the performance of the land sector to continue being supported by factors such as; positive demographics, growing demand for land particularly in the satellite areas, improving infrastructure thereby opening up areas for investment and the continued focus on the affordable housing initiative

Listed Real Estate

  • The Fahari I-REIT closed the quarter at Kshs 6.1 per share, which is a 5.2% price increase having opened the year trading at Kshs 5.8 per share. However, the share price is generally low when compared to its Kshs 20.0 inception price in November 2015, which is an overall 69.0%, with Net Asset Value of the REIT being at Kshs 19.8

Neutral

For more details, see the Cytonn H1’2021 Markets Review.

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:

Kevin Namunwa                                                                                             Teresiah W. King’ara

PR and Communications                                                                             Brand and Communications

+254 757 35 3315                                                                                           +254704597107

Email: knamunwa@cytonn.com                                                                tkingara@cytonn.com

Cytonn Investments Management Limited, 6th Floor, The Chancery, Valley Road, P.O. Box 20695 – 00200, Nairobi, Kenya.

rdo@cytonn.com | +254 (0) 20 4400420 | +254709101000

 

 

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