NAIROBI, KENYA, September 04, 2017
Cytonn Real Estate, the development affiliate of Cytonn Investments, today released its Nairobi Metropolitan Area Residential Report - 2017. The report themed “Pockets of Value in the Face of Declining Performance” focused on the performance and the investment opportunity in the residential sector in Nairobi Metropolitan Area in 2017. It is based on research conducted in 35 submarkets in the Nairobi Metropolitan Area, and is a follow-up from the 2016 Report.
The report pointed out that the most attractive areas for development are Thindigua, Ridgeways, Lang’ata and Juja which delivered total returns of 19.3% 18.4%, 17.4% and 17.3%, respectively. This is mainly as a result of proximity to high end suburbs for Thindigua and Ridgeways, proximity to the CBD and other business nodes for Lang’ata and low supply of residential units and lower prices for Juja.
Speaking during the release, Cytonn Investments Chief Investment Officer, Ms. Elizabeth Nkukuu, CFA, noted that “real estate continues to deliver attractive returns for investors, when the public markets are delivering average returns, while also being a hedge against inflationary pressures. Development of residential real estate continues to provide attractive returns, while delivering housing to combat the housing deficit of 2 million units, which grows by 200,000 units per annum. The key drivers for the increments in house prices for the best performing zones prices have mainly been high demand in the areas, ease of access from the CBD and other business districts, and lower prices compared to houses in other similar nodes.”
According to the report, on average prices increased by 3.8% in 2017 compared to a 7.4% increase in 2016 while rental yields remained fairly stable averaging at 5.6% in 2017 compared to the 2016 average of 5.2%. Speaking during the release, Head of Private Equity, Shiv Arora, noted that “the continued price appreciation, though subdued, and higher rental yields indicate sustained demand for rental housing whereas demand for housing for purchase slowed down.” The deceleration can be attributed to the wait and see attitude adopted by investors as a result of the August Election and reduced access to credit in the market, as a result of implementation of the Banking Amendment Act 2015. With the elections set to be held in November, we expect the slowdown to be sustained for the rest of the year and the market to pick up in 2018”, he added.
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(all values in Kshs unless stated otherwise) |
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Year on Year Change in Price Appreciation and Rental Yield |
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Unit Typologies |
Average Price Appreciation 2017 |
Average Rental Yield 2017 |
Total Returns 2017 |
Average Price Appreciation 2016 |
Average Rental Yield 2016 |
Total Returns 2016 |
Y/Y Change in Total Return |
|
|
Detached |
4.2% |
5.2% |
9.4% |
6.5% |
5.2% |
11.7% |
(2.3)% |
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Apartments |
3.5% |
6.0% |
9.5% |
8.3% |
5.2% |
13.5% |
(4.0)% |
|
|
Average |
3.8% |
5.6% |
9.4% |
7.4% |
5.2% |
12.6% |
(3.2)% |
|
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Prices in 2017 appreciated albeit at a lower rate of 3.8%, which is 3.7% lower than the same in 2016 due to a slow-down in demand attributed to investor anxiety over the 2017 elections. Rental yields remained stable at 5.6% compared to 5.2% yield in 2016 indicating sustained demand for rental housing. |
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Source: Cytonn Research
To identify the investment opportunity in the Nairobi Metropolitan Area, the report ranked the various submarkets based on uptake of residential units, price to land multiple, total returns earned in the area, availability of development land, state of infrastructure and the distance from the CBD to the various suburbs. Based on the ranking, Juja and Runda Mumwe were the best areas to invest in detached units mainly due to high uptake, returns and the availability of development land. The main challenge with Juja, however, is infrastructure which may result in high costs for the developer. For apartments, Ridgeways, Kilimani and Lang’ata are the best areas to invest in apartments mainly due to high uptake, returns, and proximity to main business nodes in Nairobi.
The Report noted that the key drivers for the residential sector are mainly i) population growth at 2.7%, compared to a global average of 1.2%, ii) urbanization at 4.4% compared to a global average of 2.0%, iii) improved infrastructure, and iv) increased incomes as seen through economic growth with an average GDP growth rate of more than 5.0% over the last five-years. It expects that new government incentives such as reduced taxes and scrapping of various fees is likely to spur development. The key challenges remain to be high land costs, high construction and infrastructural costs and access to financing hindering provision of affordable housing. The report forecasts the slowdown witnessed in the year so far be witnessed to the end of the year with the market picking up in 2018.
Submarket Analysis:
The report had the performance of apartments and detached units analysed separately and categorized into income bands;
High End Segment - Detached Units – This consists of zones such as Karen, Runda and Kitisuru, where houses are mainly on half acre land parcels. The zone recorded the highest average price per square meter at Kshs 194,000 and recorded average rental yields of 4.9%. On average prices increased by 2.6% in 2017 with Lower Kabete recording the highest increase in price of 5.1%.
Upper Middle Income Segment – Detached Units - These zones consist of areas such as Lang’ata, Runda Mumwe, Redhill and Loresho. Zoning regulations in these areas allow for development of both apartments and single dwelling units. The areas recorded on average a rental yield of 5.0% in 2017 and an average increase in prices of 6.1%, Langata had the highest price increment in the zone of 13.4% attributable to ease of access to the area due to its proximity to the CBD and other business nodes such as Upperhill.
Lower Middle Income Segment – Detached Units - This zone consists mainly of Satellite Towns and Nairobi suburbs such as Donholm and Komarock. The area has an average price per square meter of 77,000 and the highest annualized sales rate in Nairobi Metropolitan Area of 28.4%. On average prices increased in these zones by 3.9%, with Juja having the highest increment of 11.0% attributable to high demand from middle classes as a result of lower prices, the area has a price per square meter of 71,000 against a market average of 77,000.
Upper Middle Income Segment - Apartments - This zone consists of areas such as Ridgeways, Kilimani, Westlands and Parklands. They have an average price per square metre of Kshs 128,000 and in 2017, the zone recorded the highest yield in Nairobi Metropolitan Area of 6.2% against a market average of 5.5%. In the zone, Ridgeways had the highest price increment of 12.2% attributed to high demand in the zone evidenced by the high annual uptake of 32.9% recorded.
Lower Middle Income Segment - Apartments - Apartments in the lower middle segment recorded an average rental yield of 5.7% with an average price increment of 3.5%. Like in the detached houses for the same zone, Langata had the highest increase in price of 13.9% attributed to proximity to the CBD and other business nodes such as Upperhill.
Satellite Towns – Apartments - Nairobi’s Satellite Towns recorded an average rental yield of 6.3% with an average price increment of 3.2%. Thindigua had the highest price increment of 13.0% as a result of high by demand for houses in the area. This is as it neighbours prime areas such as Runda and Ridgeways and is easily accessible from the Central Business District compared to other satellite towns.
The report is available online: (link here)
Table 1: Top 5 Areas to Invest in Detached Units
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Top 5 Areas to Invest in Detached Units |
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Location |
Weighted Annual Uptake |
Returns Points |
Distance from Main Business Nodes |
Price to Land Multiple |
Availability of Development Land |
Infra-structure |
Total Points |
Rank |
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Juja |
3.0 |
3.0 |
1.0 |
2.0 |
3.0 |
1.0 |
2.3 |
1 |
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Runda Mumwe |
3.0 |
2.0 |
3.0 |
1.0 |
2.5 |
1.5 |
2.2 |
2 |
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Athi River |
3.0 |
1.0 |
1.0 |
2.0 |
3.0 |
1.0 |
2.0 |
3 |
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Kitengela |
2.0 |
2.0 |
1.0 |
2.0 |
3.0 |
1.0 |
1.9 |
4 |
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Langata |
1.5 |
3.0 |
3.0 |
1.0 |
1.0 |
2.0 |
1.8 |
5 |
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Juja and Runda Mumwe are best areas to invest in detached units mainly due to high uptake, returns and the availability of development land. The main challenge with Juja, however, is infrastructure which may result in high costs for the developer. |
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Source: Cytonn Research
Table 2: Top 5 Areas to Invest in Apartments
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Top 5 Areas to invest in Apartments |
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Metrics |
Weighted Annual Uptake |
Returns Points |
Distance from Main Business Nodes |
Price to Land Multiple |
Availability of Development Land |
Infra-structure |
Total Points |
Rank |
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Ridgeways |
3.0 |
3.0 |
3.0 |
2.0 |
2.5 |
2.5 |
2.7 |
1 |
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Kilimani |
2.0 |
3.0 |
3.0 |
2.0 |
2.0 |
3.0 |
2.6 |
2 |
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Langata |
2.0 |
3.0 |
3.0 |
2.0 |
1.0 |
2.5 |
2.4 |
3 |
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Dagoretti |
3.0 |
1.0 |
3.0 |
2.0 |
2.5 |
2.5 |
2.3 |
4 |
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Westlands |
1.5 |
2.0 |
3.0 |
1.0 |
2.0 |
3.5 |
2.2 |
5 |
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Ridgeways and Kilimani are the best areas to invest in apartments mainly due to high uptake, returns, and proximity to main business nodes in Nairobi |
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Source: Cytonn Research
Table 3: Performance of Detached Units – High End
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(all values in Kshs unless stated otherwise) |
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Detached Units- High End Segment |
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Location |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
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Lower Kabete |
165,113.9 |
562.5 |
18.0% |
4.1% |
5.1% |
9.2% |
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Runda |
208,621.3 |
892.0 |
9.9% |
5.2% |
3.6% |
8.7% |
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Roselyn |
173,513.4 |
853.5 |
24.3% |
5.8% |
2.0% |
7.7% |
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Kitisuru |
234,497.6 |
1,015.3 |
28.5% |
5.4% |
0.6% |
6.0% |
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Karen |
186,515.4 |
727.3 |
35.4% |
4.0% |
1.7% |
5.7% |
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Average |
193,652.3 |
810.1 |
23.2% |
4.9% |
2.6% |
7.5% |
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Lower Kabete and Runda have the highest returns attributed to their prime locations and low supply due to scarcity and high cost of development land. |
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Source: Cytonn Research
Table 4: Performance of Detached Units – Upper Middle
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(all values in Kshs unless stated otherwise) |
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Detached Units- Upper Middle Segment |
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Location |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
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Langata |
131,637.0 |
424.3 |
21.6% |
3.9% |
13.4% |
17.4% |
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Runda Mumwe |
146,861.5 |
684.9 |
21.3% |
5.9% |
6.1% |
12.0% |
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Redhill |
96,640.0 |
344.1 |
10.4% |
5.0% |
6.0% |
10.9% |
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Loresho |
147,610.6 |
613.6 |
16.8% |
5.2% |
2.9% |
8.0% |
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Ridgeways |
187,083.7 |
843.0 |
19.9% |
5.1% |
1.9% |
7.0% |
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|
Average |
141,966.6 |
582.0 |
18.0% |
5.0% |
6.1% |
11.1% |
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Lang’ata has the highest returns due to its proximity to the Nairobi CBD and other business districts such as Upperhill, thus has high demand |
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Source: Cytonn Research
Table 5: Performance of Detached Units – Lower Middle
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(all values in Kshs unless stated otherwise) |
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Detached- Lower Middle Segment |
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Location |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
|
|
Juja |
70,526.1 |
308.6 |
44.4% |
6.3% |
11.0% |
17.3% |
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Thika |
66,253.7 |
340.5 |
17.4% |
6.9% |
7.8% |
14.7% |
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Kitengela |
76,716.3 |
307.6 |
26.4% |
5.1% |
9.0% |
14.0% |
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Athi River |
87,788.8 |
301.4 |
26.1% |
4.3% |
4.8% |
9.0% |
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Ngong |
64,285.8 |
251.0 |
24.2% |
4.5% |
4.4% |
8.9% |
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Komarock |
78,876.6 |
525.3 |
32.3% |
8.0% |
0.0% |
8.0% |
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Ruiru |
84,821.4 |
384.6 |
25.0% |
5.7% |
0.5% |
6.2% |
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Rongai |
72,351.6 |
289.0 |
21.2% |
4.8% |
0.9% |
5.7% |
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Donholm |
91,797.6 |
397.1 |
38.6% |
5.2% |
(3.2%) |
2.0% |
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Average |
77,046.4 |
345.0 |
28.4% |
5.6% |
3.9% |
9.5% |
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Juja and Thika have the highest returns with relatively high price appreciation driven by demand from the lower middle income population. These markets also have relatively larger unit sizes compared to areas such as Donholm for the same price, thus buyers pay less per square metre |
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Source: Cytonn Research
Table 6: Performance of Apartments – Upper Middle
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(all values in Kshs unless stated otherwise) |
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Apartments- Upper Middle Segment |
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Location |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
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Ridgeways |
118,482.7 |
585.0 |
32.9% |
6.1% |
12.2% |
18.4% |
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Kilimani |
159,201.5 |
846.0 |
28.3% |
6.6% |
8.7% |
15.4% |
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Loresho |
106,882.1 |
531.2 |
29.8% |
6.0% |
3.9% |
9.9% |
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Westlands |
128,151.3 |
585.2 |
22.0% |
6.1% |
3.5% |
9.6% |
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Parklands |
128,650.3 |
606.3 |
28.9% |
5.6% |
3.7% |
9.3% |
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Riverside |
159,359.7 |
734.3 |
8.8% |
7.0% |
2.2% |
9.2% |
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Kileleshwa |
128,442.6 |
602.7 |
26.6% |
7.9% |
1.1% |
8.9% |
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Mountain View |
85,069.1 |
380.8 |
28.9% |
5.1% |
2.8% |
7.9% |
|
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Upper Hill |
141,041.6 |
668.8 |
16.0% |
5.8% |
0.2% |
6.0% |
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Average |
128,364.5 |
615.6 |
24.7% |
6.2% |
4.3% |
10.5% |
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Ridgeways has the highest returns at 18.4% driven by high demand as seen through the 32.9% annual uptake compared to other markets with an average annual uptake of 24.7%. The area borders Runda and Muthaiga, attracts ex-patriates working at the United Nations and Government Embassies in Gigiri and Runda. Ridgeways still has low supply compared to Kilimani and Westlands hence less competition between developers. |
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Source: Cytonn Research
Table 7: Performance of Apartments – Lower Middle
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Apartments in the lower middle segment recorded an average rental yield of 5.7% with an average price increment of 3.5%. Like in the detached houses for the same Zone, Langata had the highest increase in price of 13.9% attributed to proximity to the CBD and other business nodes such as Upperhill. (all values in Kshs unless stated otherwise) |
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Apartments- Lower Middle Income Suburbs |
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Location |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
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|
Langata |
108,948.8 |
434.6 |
23.9% |
4.8% |
13.9% |
18.7% |
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Komarock |
71,071.2 |
210.5 |
14.4% |
3.6% |
9.1% |
12.7% |
|
|
Imara Daima |
78,010.8 |
354.0 |
22.7% |
5.6% |
5.2% |
10.7% |
|
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Dagoretti |
98,185.3 |
516.9 |
31.9% |
6.4% |
3.9% |
10.3% |
|
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Kahawa West |
75,956.9 |
511.9 |
38.1% |
8.6% |
(3.8%) |
4.8% |
|
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Kasarani |
115,628.3 |
413.5 |
23.0% |
4.2% |
0.0% |
4.2% |
|
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Donholm |
73,807.0 |
393.2 |
18.7% |
6.4% |
(3.7%) |
2.7% |
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Average |
88,801.2 |
404.9 |
24.7% |
5.7% |
3.5% |
9.2% |
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Lang’ata has the highest returns among the lower middle income suburbs at 18.7% attributed to high price appreciation. The area is attractive to both investors and home-buyers due to its proximity to major business districts. |
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Source: Cytonn Research
Table 8: Performance of Apartments – Satellite Towns
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(all values in Kshs unless stated otherwise) |
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Apartments- Lower Middle Income Satellite Towns |
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Loction |
Average Price per SQM (2017) |
Average Rent per SQM (2017) |
Annual Uptake |
Rental Yield |
Price Appreciation |
Total Return |
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Thindigua |
78,875.0 |
415.8 |
32.2% |
6.4% |
13.0% |
19.3% |
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Uthiru |
71,564.8 |
386.3 |
37.9% |
6.8% |
5.5% |
12.3% |
|
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Kitengela |
47,369.2 |
225.9 |
22.6% |
5.4% |
6.4% |
11.8% |
|
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Ruaka |
99,240.3 |
448.7 |
25.0% |
5.3% |
6.4% |
11.8% |
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Kikuyu |
77,060.2 |
353.8 |
13.0% |
5.5% |
5.2% |
10.7% |
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Thika |
50,974.5 |
296.9 |
12.9% |
7.6% |
1.5% |
9.1% |
|
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Ruiru |
79,435.6 |
453.5 |
15.6% |
6.5% |
1.9% |
8.4% |
|
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Lower Kabete |
81,388.4 |
469.2 |
19.4% |
6.6% |
1.2% |
7.8% |
|
|
Athi River |
59,982.1 |
356.5 |
23.1% |
7.5% |
(0.1%) |
7.4% |
|
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Rongai |
57,951.9 |
322.6 |
27.3% |
6.8% |
(1.4%) |
5.4% |
|
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Ngong |
60,760.2 |
263.5 |
11.8% |
5.1% |
(1.1%) |
4.1% |
|
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Juja |
50,728.3 |
239.1 |
15.3% |
5.6% |
0.0% |
5.6% |
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|
Average |
67,944.2 |
352.7 |
21.3% |
6.3% |
3.2% |
9.5% |
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Thindigua is the best performing market with a 19.3% return driven by demand. It neighbours prime areas such as Runda and Ridgeways and is easily accessible from the Central Business District compared to other satellite towns. Apartments in Juja, Ngong’ and Rongai have recorded stagnation in prices indicating low demand compared to other satellite towns. As they are far from the Central Business District, they mostly attract people seeking detached units with an own compound. |
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Source: Cytonn Research
