Cytonn Real Estate, the development affiliate of Cytonn Investments, released the Nairobi Metropolitan Area (NMA) Mixed-Use Developments (MUDs) Report 2019 highlighting the performance of mixed-use developments within the Nairobi Metropolitan Area in 2019.
The report focused on the performance of mixed-use developments based on rental yields, occupancy rates, as well as annual uptake, with the research conducted on eight nodes within the Nairobi Metropolitan Area (Westlands, Kilimani, Karen, Ngong Road, Thika Road, Kiambu & Limuru Road, Mombasa Road, and Eastlands).
According to the report, Mixed-Use Developments (MUDs) recorded a decline in performance, with a 0.1 percent point y/y drop in average yields to 7.3 percent in 2019 from 7.4 percent in 2018, attributed to a decline in effective demand and constrained consumer spending due to a tough financial environment.
Kilimani was the best performing node recording average rental yields of 9.1 percent with the retail and office spaces recording rental yields of 9.6 percent and 8.4 percent, respectively, 1.2 percent points and 0.5 percent points higher than the overall MUDs average of 8.4 percent and 7.9 percent, respectively.
The performance was attributed to premium rental rates charged as the area serves a prime commercial and affluent neighbourhood hosting a large portion of Nairobi’s high-end and upper-middle-class population. Mombasa Road and Eastlands were the worst performing areas recording rental yields of 5.7 percent and 5.5 percent, respectively attributed to the low rental charges as a result of competition from informal Mixed-Use Developments.
The table below shows the summary of performance:
The main drivers of mixed-use developments concept include;
- Positive demographics as Kenya’s urban population continues to expand at an annual rate of 4.3 percent, compared to the 2.0 percent global average,
- Relatively higher developer returns compared to single-use office and retail spaces in the wake of an oversupply in the majority of the commercial nodes within Nairobi,
- Continued foreign investments into Mixed-Use Developments, and,
- The continued growth of the middle-class population leading to increased demand for convenient spaces that incorporate residential, office and social themes.
The investment opportunity within the Nairobi Metropolitan Area is in areas with high returns such as Kilimani and Limuru Road, which recorded rental yields of 9.1 percent and 8.5 percent, respectively, in comparison to the MUDs market average of 7.3 percent.
The outlook for Mixed-Use Developments (MUDs) is neutral with a bias to positive mainly due to attractive returns compared to single-use themes despite oversupply in the retail and office sectors. The investment opportunity for the concept lies in incorporating differentiated concepts such as serviced apartments and shared offices which provide attractive returns of 6.4 percent and 13.5 percent, respectively, compared to the unserviced apartments and office performance of 5.1 percent and 7.9 percent, respectively, as at Q3’2019.
Appendix
The Summary of performance was as shown below:
Compared to the respective single-use retail, commercial office and residential themes, the Mixed-Use Developments (MUDs) recorded higher returns as follows:
- Retail – Retail spaces within Mixed-Use Developments (MUDs) recorded rental yields of 8.4 percent, 0.4 percent points higher than the single-use retail market average of 8.0 percent as at Q3’2019,
- Office – Office spaces within Mixed-Use Developments recorded rental yields of 7.9 percent, 0.2 percent points higher than the single-use office market average of 7.7 percent as at Q3’2019, and
- Residential – Residential spaces within Mixed-Use Developments recorded average rental yields of 5.4 percent in 2019, 0.4 percent points more than the residential market rental yields of 5.0 percent as at Q3’2019.
The report is available online: (Link here)