Oversupply in High End Residential Market Leads to Decline on Prices

High-end Residential prices declined by 4.5 percent in 2018, 3.6 percent points more compared to a decline of 0.9 percent in 2017 according to an analysis by Cytonn Investments for the month of February.

The decline has been attributed to a general oversupply in the upper spectrum of the market, which has rendered the market a buyer’s market, thus driving prices down as a way of price correction.

In the Office Sector, asking rents in Nairobi stagnated during H2’2018 at 130 shillings per SQFT, a result of the market’s oversupply. Absorption of Grade A office space, however, increased by 63.0 percent during H2’2018 compared to H1’2018, attributable to the attractive locations of the various Grade A offices delivered to the market.

In the Retail Sector, monthly rents in prime nodes remained flat during H2’2018 as the market adjusts to the surplus space supply in certain locations, making it a tenant’s market. However, occupancy for established malls remained relatively high at over 90.0 percent, with new malls registering lower occupancies of 45-75 percent.

During the month, the retail sector recorded mixed activities with the continued entry of international retailers into the Kenyan market, while some local retailers continue to experience constrained performance.

Cytonn attributes the closure and downsizing of local retailers to financial constraints, which have forced retailers to embark on restructuring e.g. Ukwala and Uchumi Supermarkets, poor supply chain management and governance practices in the case of family-owned Nakumatt Holdings, and limited in-store products owing to the small size of the outlets compared to competitors and failure to adapt to market trends mainly on product differentiation, in the case of Ebrahim Supermarkets, thus not able to meet clients’ ever-changing preferences.

The real estate firm expects continued investment in real estate supported by; the National Governments’ affordable housing initiative, investment in trunk infrastructure favorable statutory reviews, expansion by global retailers into the country, the expanding middle-class, and hence growing disposable incomes, and positive demographics necessitating the need for adequate housing.