Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Kenya Retail Sector Report-2021. The report analyses the performance of the retail sector in Kenya based on rental rates, occupancies and rental yields, thereby identifying the investment opportunities and outlook for the sector.
According to the report, in 2021, the Kenyan retail sector registered increased market activities evidenced by the aggressive expansion by major local and international retailers as opposed to 2020 which was marked with lockdowns leading to retailers scaling down their businesses to cushion themselves against the pandemic. In terms of performance, the Kenyan retail sector performance recorded 0.1% points increase in the average rental yields to 6.8%, from 6.7% in 2020. Average occupancy rates and rental rates realized an increase of 1.8% points and 2.2%, respectively, to 78.4% and Kshs 118 per SQFT in 2021 from 76.6% and Kshs 115 per SQFT in 2020, respectively, mainly attributed to an improved business environment as well as local and international retailers such as Giordano, Carrefour, Optica Limited and Naivas aggressively taking up new retail spaces as well as spaces previously occupied by troubled retailers such as Tuskys thus cushioning the overall performance of the retail market.
The performance of the key urban centres in Kenya is as summarized below:
|
All values in Kshs unless stated otherwise |
||||||||
|
Summary of Retail Performance in Key Urban Cities in Kenya 2021 |
||||||||
|
Region |
Rent (Kshs) 2021 |
Occupancy Rate 2021 |
Rental yield 2021 |
Rent (Kshs) 2020 |
Occupancy Rate 2020 |
Rental yield 2020 |
Change in Occupancy Y/Y |
Change in Yield Y/Y |
|
Mount Kenya |
128 |
81.7% |
7.9% |
125 |
78.0% |
7.7% |
3.7% |
0.1% |
|
Nairobi |
168 |
75.8% |
7.5% |
169 |
74.5% |
7.5% |
1.3% |
0.0% |
|
Mombasa |
119 |
77.6% |
6.8% |
114 |
76.3% |
6.6% |
1.4% |
0.2% |
|
Kisumu |
101 |
74.6% |
6.4% |
97 |
74.0% |
6.3% |
0.6% |
0.1% |
|
Eldoret |
131 |
80.8% |
6.3% |
130 |
80.2% |
5.9% |
0.6% |
0.4% |
|
Nakuru |
59 |
80.0% |
6.1% |
58 |
76.6% |
5.9% |
3.4% |
0.2% |
|
Average |
118 |
78.4% |
6.8% |
115 |
76.6% |
6.7% |
1.8% |
0.1% |
Source: Cytonn Research
In the NMA, the retail market recorded average rental yields of 7.5% similar to 2020, with occupancy rates coming in at 75.8%, a 0.6% points increase from the 75.2% realized in 2020 due to the increased demand for spaces. Rental rates however continued to remain subdued at Kshs 168 per SQFT in 2021, 0.2% lower than Kshs 169 per SQFT recorded in 2020 as landlords continue to give incentives such as lowering rents to attract and retain tenants.
Mount Kenya offers the best investment opportunity to retail space developers with the average rental yields and occupancy rates at 7.9% and 81.7%, respectively, 1.1% and 3.3% points higher than market average of 6.8% and 78.4%. This can be attributed to improved average rental rates which came in at Kshs 128 per SQFT from Kshs 125 per SQFT in 2020, and increased demand for retail spaces as a result of the region being undersupplied by 0.7 mn per SQFT. For NMA, opportunity lies in Westlands and Karen which were the best performing nodes with average rental yields of 9.7% and 9.4%, respectively which were 2.2% and 1.9% points higher than the market average of 7.5%. This can mainly be attributed to higher average rental and occupancy rates that they fetch at Ksh 209 per SQFT and 80.4%, respectively, against the market average of Kshs 168 per SQFT and 75.8%, respectively, adequate amenities and infrastructure, and the undersupply of retail stores in Karen thus driving higher demand for the available ones.
The table below summarizes metrics that have a possible impact on the retail sector, that is the retail space supply, performance, retail space demand, and concluding with the market opportunity/outlook in the sector;
Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook
|
Kenya Retail Sector Outlook 2021 |
||||
|
Sentiment 2020 |
Sentiment 2021 |
2020 Outlook |
2021 Outlook |
|
|
Retail Space Supply |
Main urban cities such as Nairobi and Kisumu have an existing oversupply of space while regions such as Kiambu County and Mt Kenya region are undersupplied and therefore, we expect to see developers shifting their focus to these regions. This will be supported by demand from international retailers and expansion by local retail chains |
Nairobi, Kisumu, Uasin Gishu and Nakuru are the most oversupplied areas by 3.0 mn, 0.3 mn, 0.1 mn and 0.1 mn SQFT of space, respectively while areas such as Kiambu and Mt Kenya regions are under supplied by 0.8 mn and 0.7 mn SQFT, respectively |
Neutral |
Neutral |
|
Retail Space Demand |
Nairobi, Kisumu and Nakuru are the most oversupplied areas by 3.1 mn, 0.3 mn and 0.2 mn SQFT of space, respectively while areas such as Mt Kenya are under supplied by 0.7 mn SQFT |
Performance of cities such as Nairobi, Kisumu, Uasin Gishu and Nakuru continues to be affected by the slow absorption rates of the retail spaces due to the existing demand that doesn’t match the higher supply, that is also expected to increase with the additional spaces such as the Imaara mall along Mombasa road, Britam Mall in Kilimani, and the Beacon Mall in Nairobi CBD |
Neutral |
Neutral |
|
Retail Market Performance |
The retail sector performance recorded a decline of 0.3% and 0.7% points in average rental yields and occupancy rates, respectively, coming in at 6.7% and 76.6%, respectively Nairobi and Mt. Kenya were the best performing regions with average rental yields of 7.7% and 7.5%, respectively, attributable to relatively high demand for quality retail space demand for space in malls. We expect the sector’s performance to be cushioned by entry of local and international retailers taking up prime retail space left by their troubled counterparts |
Kenyan retail sector performance recorded a 0.1% increase in the average rental yields to 6.8% in 2021, from 6.7% in 2020. Average occupancy rates and rental rates also realized an increase of 1.8% points and 2.2% points, respectively, to 78.4% and Kshs 117.8 per SQFT in 2021 Mount Kenya and Nairobi were the best performing regions with the average rental yields coming in at 7.9% and 7.5%, respectively against the market average of 6.8% We expect to see increased market activity with the expansion efforts by local and international retailers such as Naivas and Carrefour taking up space left by troubled retailers such as Tuskys. The existing oversupply is however expected to weigh down the performance of the Kenyan retail market |
Neutral |
Neutral |
|
Our outlook for the Kenya retail market remains NEUTRAL with factors such as the e-commerce strategy, limited availability of land and financial constraints expected to impede performance of the sector. However, the rapid infrastructure developments, retailers aggressively taking up retail spaces, positive demographics and the reopening of the economy is expected to cushion the sector’s performance |
||||
For more details, see the report
