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11 February, 2022
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‘’WESTLANDS AND KILIMANI WERE THE BEST PERFORMING NODES FOR SERVICED APARTMENTS IN THE NAIROBI METROPOLITAN AREA (NMA), RECORDING AVERAGE RENTAL YIELDS OF 9.3% AND 7.2% RESPECTIVELY, COMPARED TO THE MARKET AVERAGE OF 6.2%’’

Nairobi, Kenya.

Monday November 28th 2022

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released its Nairobi Metropolitan Area (NMA) Serviced Apartments Report 2022. The report analyses the performance of Serviced Apartments within the Nairobi Metropolitan Area through tracking the changes in occupancies, rental yields and rental rates. It also outlines the outlook and investment opportunity for NMA Serviced Apartments.

According to the report, NMA serviced apartments recorded an average rental yield of 6.2% in 2022 which was a 0.7% points increase from the 5.5% realized in 2021. This was mainly attributed to; i) economic recovery especially for the services and accommodation sector, ii) an increase in both local and international tourist arrivals into the country resulting in an increase in occupancies as well as the number of hotels in operation during the period, iii) the intensive marketing of Kenya’s tourism market through platforms such as the Magical Kenya platform among others, iv) the increased operation of multinationals in the city who prefer to host their employees in serviced apartments, and, v) the rising preference by various guests for extended stay options within the city. The table below shows the performance of NMA serviced apartments between 2021 and 2022;

All values in Kshs unless stated otherwise

Cytonn Report: Comparative Analysis-2021/2022 Market Performance

Node

Monthly Charge/SQM 2021

Occupancy 2021

Rental Yield 2021

Monthly Charge/SQM 2022

Occupancy 2022

Rental Yield 2022

Change in Monthly Charges/SQM

Change in Occupancy

Change in Rental Yield

Westlands

3,569

68.8%

8.3%

3,916

70.7%

9.3%

9.7%

1.9%

1.0%

Kilimani

2,815

60.0%

5.8%

2,937

69.3%

7.2%

4.3%

9.3%

1.4%

Kileleshwa & Lavington

2,571

57.1%

6.4%

2,811

66.3%

6.6%

9.3%

9.2%

0.2%

Limuru Road

2,853

60.5%

4.9%

2,976

60.6%

5.8%

4.3%

0.1%

0.9%

Nairobi CBD

2,176

66.6%

4.9%

2,348

66.2%

5.2%

7.9%

(0.4%)

0.3%

Upperhill

2,109

61.1%

4.5%

2,225

65.4%

5.0%

5.5%

4.3%

0.5%

Thika Road

1,748

56.4%

3.5%

1,800

62.1%

4.2%

3.0%

5.7%

0.7%

Average

2,549

61.5%

5.5%

2,716

65.8%

6.2%

6.3%

4.3%

0.7%

Source: Cytonn Research 2022

Westlands and Kilimani were the best performing nodes, with average rental yields of 9.3% and 7.2% respectively, 3.1% and 1.0% points higher than the market average of 6.2% in 2022. This was attributed to; i) their proximity to the CBD,  ii) presence of high quality serviced apartments available in the nodes which attract premium rates, iii) ease of accessing the areas through well-developed infrastructure road networks, and , iv) the proximity to international organization offered by the apartments, all of which drive the demand for serviced apartments in the nodes. On the other hand, Thika Road was the worst performing node with an average rental yield of 4.2%, 2.0% points lower than the market average of 6.2%, attributed to the relatively low charge rates for apartments in the node, low demand for its serviced apartments caused by their unpopularity, the long commute to main commercial zones, and security concerns surrounding the area, given that it is not mapped within the UN Blue Zone.

After looking at the various factors driving the hospitality industry and with a particular focus on the serviced apartments sector, including challenges and current performance, we concluded with a recommendation of existing investment opportunities in the sector, and outlook as depicted below;

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

Cytonn Report: Serviced Apartments Sector Outlook

Measure

Sentiment

Outlook

Serviced Apartments Performance

  • Serviced apartments within the NMA recorded an average rental yield of 6.2% in 2022, a 0.7% points increase from 5.5% recorded in 2021. Average occupancy rates also increased coming in at 65.8%, representing a 4.3%-points increase from the 61.5% recorded in 2021. Monthly charges for 2022 increased by 6.3% to Kshs 2,716 per SQM from Kshs 2,549 per SQM recorded the previous year.
  • Our outlook for the sector is positive as the sector continues to recover completely from the negative effects of the pandemic. Additionally, increased tourist arrivals into the country and the continued positive performance of the Kenyan hospitality industry will propel the sector’s performance on an upward trajectory.

Positive

International Tourism

  • International arrivals through Jomo Kenyatta International Airport (JKIA) and Moi International Airport (MIA) increased by 89.1% to 723,630 visitors on a Year-to-Date (YTD) basis from 382,619 visitors recorded during the same period under review in 2021. The improvement in performance can be attributable to; i) easing of travel restrictions following the lifting of lockdowns, ii) continued recognition of Kenya’s tourism sector through various accolades awarded to several local and international hotel brands, iii) increased rollout of Covid vaccine which has positively impacted on visitor’s confidence into the country, iv) aggressive marketing campaigns by the Kenya Tourism Board through the magical Kenya platform, v) stable business environment following the peaceful conclusion of the August Presidential polls, and, vi) heightened leisure activities attributed to the oncoming festive season.
  • Despite the resilient performance of the sector, our outlook remains neutral owing to inoculation rates still being relatively low currently coming in at 36.6% compared to the global average of 62.9%. This continues to negatively impact on international arrivals as some tourists find it deterrent. In addition, Kenya faces stiff competition from countries such as Zanzibar, South Africa offering better tourist attractions and modern conference facilities such as Kigali Conference and Exhibitions Village (KCEV).

Neutral

MICE Tourism

  • Kenya emerged as Africa’s best MICE destination, as a result of Nairobi winning Africa's Best MICE Destination 2022 award in the 3rd annual World MICE Awards, positioning Kenya as a popular MICE destination. This was on the back of outstanding conferencing centers such as Kenyatta International Convention Centre (KICC), world class accommodation centers such as the Hilton Hotel in Nairobi, top rated airlines such as Kenya Airways (KQ), and a stable business environment. Several other Kenyan hotels and brands such as Zuri events and Leopard Beach Resort and Spa were awarded in the Kenyan category.
  • However, the popularity of teleconferencing and online meeting tools like Google Meet and Zoom Meetings is expected to continue weighing down the optimum need for physical space in conducting meetings. Additionally, the government’s directive to indefinitely suspend hotel meetings, conferences and trainings will further weigh down the optimum performance of the conferencing, food and accommodation sub-sectors.

Neutral

Supply

  • The number of serviced apartments within the Nairobi Metropolitan Area (NMA) increased by a 7-Year CAGR of 9.3 % to 6,377 apartments in 2022, from 3,414 apartments in 2015, with key facilities coming into the market this year being 162-room Somerset Westview Serviced Apartments and 120-room 9 0ak Residences located in Kilimani. Westlands also debuted the 51-room JW Marriot Serviced Apartments which is located in the iconic Global Trade Centre and developed by Avic International.
  • The Nairobi Metropolitan Area has several developments in the pipeline. We expect that upcoming developments will continue to increase the present supply and promote competition for the advantage of customers.

Neutral

Source: Cytonn Research 2022

Given that majority of our key metrics are neutral, we have a NEUTRAL overall outlook for the hospitality sector. The Investment opportunity lies in Westlands, Kilimani, and Kileleshwa-Lavington which performed the best among all the nodes, with rental yields of 9.3%, 7.2% and 6.6% respectively, compared to the market average of 6.2%.

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:

Teresiah W. King’ara

Brand and Communications

+254704597107 

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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