Lifestyle Communities Average Total Returns Stood At 7.7%, 3.0% Higher Than The Residential Market Average Of 4.7%

By Cytonn Investments / Published February 15, 2021 | 1:26 pm




KEY POINTS

According to our analysis, lifestyle communities’ average total returns stood at 7.7%, 3.0% points higher than the residential market average of 4.7%.


Nairobi

A lifestyle community, also known as a common-interest community, is a residential neighborhood with one or more unique features aimed at enhancing the quality of life for its residents by offering convenience, comfort, and all-around luxury.

The setting is mainly communal with large shared common spaces. The main unique features include but are not limited to fitness facilities such as; gyms, walking and biking trails, swimming pools, golfing amenities and boating facilities, etc, and for these communities, privacy and security are a top priority for most residents.

We sampled lifestyle developments in key neighborhoods among them; Westlands, Kilimani, Limuru Road, and Thika Road. These areas have continued to record growth of lifestyle communities supported by; i) relatively good transport networks, ii) proximity to social amenities, i.e, presence of malls such as Garden City Mall and Two Rivers Mall, iii) proximity to commercial nodes offering convenience for the working population, and, iv) hosting expatriates and the majority of the growing Kenyan middle-class with increased disposable income thus demand convenient and comprehensive lifestyles.

According to our analysis, lifestyle communities’ average total returns stood at 7.7%, 3.0% points higher than the residential market average of 4.7% according to Cytonn Annual Markets Review 2020.

One-bedrooms apartments were the best performing with an average return of 10.1%, followed closely by two-bedroom apartments at 9.4%, while three and four-bedroom apartments came in at 6.6% and 4.7%, respectively.

The good performance of one and two-bedroom apartments are supported by their high demand as rental units. The performance of three-bedroom apartments was affected by 0.9% price correction attributable to the slowdown in demand amid reduced disposable income and thus focus on more affordable options.

Four-bedroom apartments recorded low rental yields averaging 4.2% respectively, attributed to relatively low occupancy rates at 77.0%, compared to the market average at 80.2%.

Nevertheless, four-bedroom apartments had the highest average annualized uptake which stood at 21.7% while three, two, and one-bedrooms recorded average annualized uptakes averaging 21.3%, 21.2%, and 19.1%, respectively.

The concept remained resilient recording an average price appreciation of 0.1% despite the tough economic environment

The table below shows the performance of lifestyle communities in the Nairobi Metropolitan Area in 2021;

On the residential part, the best typologies to invest in would be one-bedrooms followed by two-bedrooms owing to their high returns supported by their high rental returns and resilient unit prices amid reduced transaction volumes in the market.

We expect the real estate sector to continue recording the increased development of lifestyle communities, however, the tough economic environment, market uncertainty, and the reduced disposable income will continue to affect the uptake of units within the lifestyle communities in the short term. For more information, please see our topical on Lifestyle Communities.







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