PROPERTY BUBBLE?

Nairobi office glut earns lowest in region - report

Kenya had much riskier outlook especially in the rental space among countries sampled, owing to lower yields.

In Summary

• Investors in Nairobi earned  eight per cent for office, 8.5 per cent for logistics property, and nine per cent for retail

• Those are the lowest yields in East Africa. 

OFFICE SPACE: Delta House building in Westlands. Photo/Monicah Mwangi
OFFICE SPACE: Delta House building in Westlands. Photo/Monicah Mwangi

Investors in commercial property reaped lowest yields on investment last year compared to their peers in East Africa.

Property report dubbed Africa Horizon released yesterday shows investors earned eight per cent for office, 8.5 per cent for logistics property, and nine per cent for retail.

This is much lower compared to Uganda which had highest yield in the region, attracting 10 per cent for office and 13 per cent for both logistics and retail space.

Investors in Tanzania earned nine per cent on office space and 10 per cent return on logistics and retail space. Those in Rwanda had a return on investment of eight per cent for office and logistics but 11 per cent for retail.  

According to Knight Frank Kenya managing director Ben Woodhams, Kenya had much riskier outlook especially in the rental space among countries sampled, owing to lower yields.

‘’Yields in each of the market segments align to their risk profiles, with retail being much riskier in Nairobi currently hence the proportionately higher yield, ‘Woodhams said.

Low returns especially in rental office space are well illustrated by the Nairobi Metropolitan Area Commercial Office Report by Cytonn which pointed to high supply, low demand

According to the report, developers have focused heavily on the construction of office buildings leading to an office stock of nine million square feet against a demand of 3.8 million square feet.

“We have a negative outlook for the commercial office theme in the Nairobi Metropolitan Area, and thus investment in the sector should be geared to the long-term horizon for gains when the market picks up, “Cytonn’s senior manager for regional markets Johnson Denge said.

Kenya however recorded better yield for warehouses at nine per cent compared to 7.5 per cent in 2017.

A-grade warehousing around the Nairobi currently commands monthly rents in the upward of $6 (Sh600) per square metre, almost double that of the predominant stock of older units that lack modern features such as cross-docking and intermodal facilities

In Kenya’s logistics sector, formal retailers have emerged as a major driver of growth owing to their increasing need for large centralised warehouses as they gain critical mass countrywide.

The Knight Frank’s study reveals that yield remained stable in 16 locations in the two years to 2018, rose in six while 13 markets recorded declines.

Just under US$2 billion worth of deals in Africa were publicised in 2018, predominantly involving assets in South Africa.

"We envisage rising investor demand for those African locations that can demonstrate something of a counter-cyclical nature, combined with rising domestic wealth," the Africa Horizons report said.

Madagascar had highest yields across the segments, awarding 14 per cent for office space, 13 per cent logistic and a whopping 18 per cent for retail space.  

Investors in Zambia’s property space earned the least at 7.5 per cent for office, seven per cent from logistics and eight per cent for retail space.

 

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