Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Annual Markets Review 2021. The report highlights 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 the residential sector, apartments recorded average total returns of 6.7% in comparison to the detached average returns of 5.6%: the retail and commercial office sectors recorded increase in rental yields to 7.8% and 7.1% in FY’2021, from 7.5% and 7.0%, respectively in FY’2020. The land sector recorded an average Year on Year (YoY) capital appreciation of 2.8% in FY’2021, as land prices increased to Kshs 134.8 mn per acre in 2021 from Kshs 134.0 mn per acre in 2020.
“In 2021, the Kenyan Real Estate sector witnessed increased development activities with a general improvement in Real Estate transactions, attributed to the improved business environment. Some of the factors that supported the improved performance of the sector included; i) continued focus on affordable housing projects, coupled with improved investor confidence in the country’s housing market , ii) aggressive expansion by local and international retailers , iii) lifting of flight travel bans that led to increased number of visitor arrivals into the country , iv) government’s aggressiveness in implementing infrastructure road projects thereby supporting Real Estate investments, and, v) Positive demographics driving increased demand for developments,” stated Linah Amondi, a Research Assistant at Cytonn.
Conversely, there were challenges that weighed down the performance of the sector which included;
- Financial constraints leading to various projects stalling,
- Existing oversupply in the NMA office and retail markets at 7.3 mn SQFT and 3.0 mn SQFT, respectively, coupled with an oversupply of 1.7 mn SQFT in the Kenya retail market,
- Under-developed capital markets which contribute a mere 5.0% of real estate funding, compared to 60.0% in developed countries,
- Crippled demand for office and retail spaces as a result of remote working and e-commerce strategy still being adopted by some businesses, and,
- Travel bans and restrictions imposed particularly in the first half of the year thereby affecting the number of arrivals into the country, and in turn the performance of serviced apartments and hotels.
The residential sector recorded an improvement in performance, with the average total return to investors at 6.1%, an increase from the 4.7% recorded in FY’2020. Detached units in Ruiru and Ngong recorded the highest returns at 8.2% and 8.0%, respectively, while apartments in Rongai and Waiyaki Way recorded the highest returns at 8.8% and 8.6%, respectively.
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(All Values in Kshs unless stated otherwise) |
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Detached Units Performance: Top 5 markets |
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Area |
Average of Price per SQM FY'2021 |
Average of Rent per SQM FY'2021 |
Average of Occupancy FY'2021 |
Average of Uptake FY'2021 |
Average of Annual Uptake FY'2021 |
Average of Rental Yield FY'2021 |
Average of Price Appreciation FY'2021 |
Total Returns |
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Ruiru |
66,080 |
302 |
83.7% |
70.6% |
21.3% |
5.3% |
2.9% |
8.2% |
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Ngong |
62,988 |
337 |
88.7% |
89.7% |
13.6% |
6.3% |
1.7% |
8.0% |
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Kitengela |
61,067 |
274 |
89.2% |
72.2% |
12.2% |
4.8% |
2.4% |
7.2% |
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Syokimau/Mlolongo |
75,599 |
311 |
87.8% |
85.8% |
22.0% |
4.2% |
2.9% |
7.1% |
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Redhill & Sigona |
99,472 |
442 |
94.9% |
87.6% |
16.1% |
4.9% |
2.1% |
7.0% |
Cytonn Research, 2021
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(All Values in Kshs unless stated otherwise) |
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Apartments Market performance: Top 5 Markets |
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Area |
Average of Price per SQM FY'2021 |
Average of Rent per SQM FY'2021 |
Average of Occupancy FY'2021 |
Average of Uptake FY'2021 |
Average of Annual Uptake FY'2021 |
Average of Rental Yield FY'2021 |
Average of Price Appreciation FY'2021 |
Total Returns |
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Rongai |
60,003 |
347 |
86.3% |
74.3% |
16.1% |
6.2% |
2.6% |
8.8% |
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Waiyaki Way |
87,231 |
526 |
86.8% |
83.9% |
27.4% |
6.3% |
2.3% |
8.6% |
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South C |
119,410 |
699 |
79.5% |
67.0% |
19.6% |
6.1% |
2.4% |
8.5% |
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Ruaka |
107,375 |
588 |
91.9% |
81.7% |
20.2% |
5.6% |
2.9% |
8.5% |
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Dagoretti |
87,342 |
560 |
91.9% |
95.7% |
20.9% |
6.0% |
2.4% |
8.4% |
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Donholm & Komarock |
84,741 |
422 |
86.1% |
89.9% |
13.4% |
5.5% |
2.5% |
8.0% |
Cytonn Research, 2021
In the commercial office sector, Gigiri was the best performing node in 2021 with average rental yields at 8.6%, 1.5% points higher than the market average 7.1%. This was mainly attributed to the availability of top quality grade A and B offices charging premium rental prices, and availability of adequate infrastructure and amenities in the area such as the Limuru Road.
In the retail sector, Westlands was the best performing node recording average rental yields of 10.0%, 2.2% points higher than the market average of 7.8%. The remarkable performance was mainly attributed to; i) relatively high monthly rents at Kshs 213 per SQFT compared to the market average of Kshs 170, ii) adequate amenities and infrastructure servicing the areas, and, iii) relatively high demand evidenced by their high occupancy rates at 78.8%, compared to the market average of 76.8%.
For hospitality sector, overall serviced apartments’ year on year performance improved, with the occupancy rates increasing by 13.5% points to 61.5%, from 48.0% recorded in 2020. The monthly charges per SQM increased by 0.7% to Kshs 2,549 in 2021 from Kshs 2,533 recorded in 2020. The average rental yield increased by 1.5% points to 5.5% in 2021, from 4.0% recorded in 2020. This is mainly attributable to an increase in the number of local and international tourist arrivals following the lift of travel bans by countries such as the UK.
In the listed Real Estate Investments Trusts (REITs), ILAM Fahari I-REIT closed the year trading at an average price of Kshs 6.3 per share, representing a 7.9% Year-on-Year (YoY) increase from the Kshs 5.8 per share. However, on Inception-to-Date (ITD) basis, the REIT’s performance declined by 68.5% from Kshs 20.0. On the other hand, Acorn DREIT closed the year trading at Kshs 20.1 while the I-REIT closed at Kshs 20.6 per unit. This performance represented a 0.5% and 3.0% gain for the DREIT and I-REIT, respectively, from the Kshs 20.0 Inception price.
Our outlook for the Real Estate sector is NEUTRAL as we expect its performance to be on an upward trajectory mainly supported by; i) government’s focus to implement affordable housing projects coupled with improved investor confidence in the country’s housing market, ii) increased demand for office spaces, iii) rapid expansion by local and international retailers, iv) increased visitor arrivals into the country hence boosting the performance of hospitality sector, v) government’s aggressiveness towards infrastructure roads development thus boosting investments through accessibility, and, vi) positive demographics. However, factors such as financial constraints, oversupply in the commercial office and retail sectors, and low of investor appetite in Real Estate Investments Trusts (REITs) are expected to continue impeding performance of the sector. Below is a summary of the FY’2021 sectorial performance:
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook
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Theme |
Thematic Performance and outlook FY’2022 |
Outlook |
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Residential |
Apartments registered relatively higher average total returns to investors at 6.7% compared to detached units at 5.6%, attributable to a 5.3% average rental yield and an average y/y price appreciation of 1.4% |
Neutral |
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We expect the sector to continue recording increased developments supported by the continued construction of affordable housing projects and diversified sources of finance to fund both affordable housing and mortgages. The investment opportunity for apartments lies in areas such as Rongai, Waiyaki Way, South C, and Kileleshwa. For detached units, investment opportunity lies in areas such as Ruiru, Ngong, Kitengela, and Redhill |
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Office |
The sector realized a slight improvement in its average rental yields coming in at 7.1%, 0.1 % points higher than the 7.0% recorded in 2020. The improvement was mainly driven by an improved business environment following the lifting of the COVID-19 containment measures, as well as some businesses resuming full operations hence boosting the occupancy rates. The average asking rents however remained flat at Kshs 93, as some landlords still offer discounts in order to retain and attract new clients, hence the rents haven’t resumed their pre-covid rates |
Neutral |
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We expect the sector’s performance to be boosted by the improved business environment, as well as some businesses resuming full operations. However its performance is expected to continue being hindered by the existing oversupply at 7.3 mn SQFT, and remote working strategy still being embraced by some firms thus crippling demand. Investment opportunity lies in Gigiri, Westlands and Karen supported by relatively high returns with yields of 8.6%, 8.1% and 7.7%, respectively, compared to the market average of 7.1% |
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Retail |
The sector recorded a 0.3% points increase in average rental yields to 7.8%, from 7.5% in 2020 due to; i) an improved business environment following the lifting of the COVID-19 containment measures, ii) aggressive expansion by local and international retailers such as Naivas, Artcaffe, QuickMart, and Carrefour, iii) increased infrastructure developments hence promoting accessibility to retail centres, iv) availability of prime retail space left by troubled retailers, and, v) positive demographics facilitating demand for spaces, goods and services |
Neutral |
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We expect the sector to continue witnessing the entry of local and international retailers taking up space exited by struggling retailers thus cushioning the performance of sector Investment opportunity lies in Westlands, Karen and Kilimani which recorded high rental yields of 10.0%, 9.8% and 9.8%, respectively, compared to the market average of 7.8%, |
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Mixed-Use Developments |
Mixed-Use Developments recorded an average rental yield of 7.2% in 2021, 0.7% points higher than the respective single-use themes which recorded average rental yield of 6.5% in the similar period. The relatively better performance was mainly attributed to; i) an improved business environment, ii) strategic and prime locations of the developments with the capability to attract prospective clients, and, iii) preference by target clients due to their convenience hence improved demand and returns to investors |
Neutral |
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Investment opportunity lies in areas with relatively high returns such as Karen and Westlands which recorded average MUD rental yields of 8.7%, and, 7.8%, respectively |
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Hospitality |
Overall serviced apartments’ YoY performance improved, with the occupancy rates increasing by 13.5% points to 61.5%, from 48.0% recorded in 2020. The average rental yield increased by 1.5% points to 5.5% in 2021, from 4.0% recorded in 2020. This is mainly attributable to an increase in the number of local and international tourist arrivals following the lift of travel bans by countries such as the UK |
Neutral |
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We expect the sector to be on an upward trajectory following the ambitious international marketing, positive recognitions, the return of international flights and the mass vaccination currently underway in the country. However, the emergence of COVID-19 variant Omicron, continues to pose a risk on recovery as stricter measures may be imposed to curb its spread The investment opportunity lies in Westlands and Kileleshwa/Lavington which recorded average rental yields of 8.3% and 6.4%, respectively against a market average of 5.5% |
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Land |
The land sector recorded an average Year on Year (YoY) capital appreciation of 2.8% in FY’2021, as land prices increased to Kshs 134.8 mn per acre in 2021 from Kshs 134.0 mn per acre in 2020 |
Positive |
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The investment opportunity lies in Kitisuru, Juja and Utawala for unserviced land, which recorded annualized capital appreciations of 8.2%, 7.6% and 7.5%, respectively. For site and service schemes, Syokimau and Ruiru-Juja with the highest annualized capital appreciations at 8.1% and 6.4%, respectively |
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Listed Real Estate |
In the Nairobi Stock Exchange, ILAM Fahari I-REIT closed the year trading at an average price of Kshs 6.3 per share, representing a 7.9% Year-on-Year (YoY) increase from the Kshs 5.8 per share. However, on Inception-to-Date (ITD) basis, the REIT’s performance declined by 68.5% from Kshs 20.0. In the Unquoted Securities Platform, Acorn DREIT closed the year trading at Kshs 20.1 while the I-REIT closed at Kshs 20.6 per unit. This performance represented a 0.5% and 3.0% gain for the DREIT and I-REIT, respectively, from the Kshs 20.0 Inception price |
Negative |
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We expect listed real estate performance to continue being subdued due to a general lack of knowledge on the financing instrument, general lack of interest of the REIT by investors, high minimum investments amounts set at Kshs 5.0 mn for D-REITs, and, lengthy approval processes to get all the necessary requirements thus discouraging those interested in investing in it |
