Westlands And Karen Named The Best Performing Retain Nodes In Nairobi

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released Kenya Retail Sector Report-2020 that analyses the performance of the retail sector in Kenya through tracking the changes in occupancies, rental yields, and rental rates.

According to the report, the 2020 period recorded subdued performance across the various real estate themes resulting from the tough operating environment as the economy grappled with the effects of the Coronavirus pandemic.

In the retail sector, performance declined recording average rental yields of 6.7 percent, 0.3 percentage points lower than the 7.0 percent recorded in 2019.

The subdued performance is largely attributed to

• Reduction in rental rates in a bid to attract tenants amid a tough economic environment which saw the rental rates in the sector post a 2.1 percent decline to 115.1 shillings per SQFT in 2020, from Kshs 118.0 per SQFT in 2019
• Reduced occupancy rates which declined by 0.7 percentage points Y/Y from 77.3 percent in 2019 to 76.6 percent in 2020 attributable to reduced demand for physical retail space due to growing focus on e-commerce and scaling down of retailers in the wake of reduced revenue inflows.

The performance of the key urban centers in Kenya is as summarized below:

Rental yields within the Nairobi Metropolitan Area (NMA) declined by 0.5 percentage points to 7.5 percent from 8.0 percent in 2020.

This was attributable to a decline in demand for space evidenced by a drop in occupancies by 0.6 percentage points from 75.1 percent in 2019 to 74.5 percent in 2020 and a marginal decline in rent of 0.1 percent to 168.5 shillings from 168.6 shillings per SQFT.

The subdued performance is also attributed to the current oversupply of retail report spaces by 3.1 mn SQFT, shifting focus to e-commerce leading to declining in demand for physical retail spaces, constrained consumer spending given the tough economic environment, and exit by some retailers to cushion themselves against the negative effects of the Coronavirus pandemic.

Mt. Kenya region offers the best investment opportunity to retail space developers, with high rental yields of 7.7 percent, 0.1 percentage points higher compared to market averages of 6.7 percent, the region currently has an existing retail space deficit of 0.7 mn SQFT, the undersupply signals high demand.

Within the Nairobi Metropolitan Area (NMA), the opportunity lies in Westlands and Karen which were the best performing retail nodes with rental yields of 9.8 and 9.2 percent, respectively attributed to relatively high demand

The neighborhood host affluent residents with high consumer purchasing power, the ability to charge a premium on rates on the high quality retail spaces, relatively good infrastructure thus ease of access into the areas and relatively high occupancy rates of 80.9 and 79.1 percent, respectively above the market average of 74.5 percent.

The table below summarizes metrics that have a possible impact on the retail sector, that is the retail space supply, performance, retail space demand, and concluding with the market opportunity/outlook in the sector: