Real Estate Sector Softens during Q1 ’2019 in Cytonn’s Market Review Report

Cytonn Real Estate, the development affiliate of Cytonn Investments, have released their Q1’2019 real estate market review, highlighting the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and hence, total investor returns.

The real estate sector softened in Q1’2019, with sectors such as office and retail registering a decline in rental yields by 0.1 percentage points and 0.5 percentage points, to 8.0 and 8.5 percent from 8.1 and 9.0 percent respectively in FY’2018.

The residential sector recorded 0.5 percent annualized price appreciation, 3.7 percentage points lower than 4.2 percent in FY’2018.

The performance was constrained by:

• Limited access to financing by developers and end users, with private sector credit growth coming in at 3.4 percent in February 2019, compared to a 5-year (2014-2019) average of 12.4 percent
• High land and construction costs, especially in the Nairobi Metropolitan Area
• Increased supply in selected sectors such as the commercial office and retail sectors with a surplus of 5.2mn SQFT and 2.0mn SQFT, respectively, as at 2018.

In addition, the report noted that there was activity across all real estate themes, supported by:

• Continued demand for investment property from multinational individuals, firms and the growing middle class
• The Kenyan Government’s efforts towards provision of affordable housing as part of its Big 4 Agenda
• Continued infrastructural improvement, which is opening up new areas for development.

“We retain a NEUTRAL outlook for the real estate sector mainly constrained by increased supply in the market and limited access to financing for both developers and off-takers.

The real estate sector, however has pockets of value in themes such as housing for lower-middle to low-income earners in the residential sector, differentiated concepts such as serviced offices that attract yields of 13.4 percent such as Westlands, as well as areas with low supply of office space such as Gigiri and county headquarters driven by positive demographics, devolution and sustained infrastructural development.” said Juster Kendi, Research Analyst at Cytonn.

Below is a Summary of the Q1’2019 sectorial performance: