Apartments In Lang’ata, Athi River, Kilimani Record High Returns in Q1, 2020

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released its Q1’2020 Markets Review. The report highlights the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and hence, total investor returns.

According to the report, average rental yields improved marginally in the residential and commercial office sectors to 5.1 percent and 7.8 percent respectively, from 5.0 percent and 7.5 percent in Q4’2019.

The retail sector registered a marginal drop in rental yields to 7.7 percent in Q1’2020, from 7.8 percent in Q4’2019 while capital appreciation for land in the Nairobi Metropolitan Area came in at 0.2 percent.

In terms of annual uptake, detached units came in at 18.7 percent compared to apartments with 19.4 percent. The sector was largely constrained by a challenging financial environment that is expected to escalate with the ongoing coronavirus pandemic.

Apartments recorded the highest rental yields at 5.8 percent, 0.6 percentage points higher than the overall residential market.

“Apartments continued to be popular in the market largely driven by the growing middle-class bracket on the demand side, and need for profit maximization for developers on the supply side especially in light of rising land prices’’ said Wacu Mbugua, Research Analyst at Cytonn.

As per the report, Langata, Athi River, Kilimani and Ruaka registered the highest returns to investors at 6.8, 6.7, and 6.3 percent respectively, boosted by constant demand from Nairobi’s young and working population.

According to the report, the commercial office sector also recorded a marginal improvement in performance with rental yields recording a 0.3 percentage points increase to 7.8 percent in Q1’2020, from 7.5 percent in FY’2019 attributable to a 1.5 percentage points increase in occupancy rates to 81.7 percent in Q1’2020, from 80.2 percent recorded in FY’2019.

The outlook is neutral for five sectors, that is, residential, office, retail, hospitality and listed real estate, while the land remains positive.

Thus, the overall outlook for the real estate sector is neutral with key drivers being the constant housing deficit, infrastructural development, foreign investment mainly directed towards the retail sector, and government efforts to improve processes in the built environment in a bid to improve Kenya’s ease of doing business.

However, we expect the sector’s performance to be dampened temporarily by the current COVID-19 pandemic, which is set to see Kenya’s 2020 GDP growth reduce by 10 percent to 25 people, as well as surplus supply in various sectors such as office and retail.

READ: Nasty Flu Season Takes Toll On Economy, Hammers Small Businesses