PLENTY OF ROOM

Oversupply pushes down commercial rents - report

Managers have had to employ prudent methods in a bid to retain tenants

In Summary

•Retail space owners have had to deduct Sh14 worth of rent per square foot to Sh118 compared to the same period last year

•Constrained spending power among consumers due to a tough financial environment has also resulted in low rental yields 

Front view of the newly build Karen Waterfront on August 28,2018. e building will host retail shops
Front view of the newly build Karen Waterfront on August 28,2018.  e building will host retail shops
Image: ENOS TECHE

There is too much commercial space in Nairobi, pushing down rents and forcing landlords to employing new tactics to attract and retain tenants, according to Kenya Retail Real Estate Sector Report 2019.

The report by investment firm, Cyton shows retail space rentals in Nairobi declined by one per cent to eight per cent growth.

This was a result of an eight million square foot in retail space supply, out of which Nairobi alone accounts for 2.8 million (35 per cent).

 

The survey shows retail space owners have had to deduct Sh14 worth of rent per square foot to Sh118 compared to the same period last year.

The oversupply has been driven by the addition of malls such as Waterfront, The Well, Mountain View and the expansion of Westgate and Sarit Centre malls over the past year.

This, coupled with constrained spending power among consumers due to a tough financial environment has resulted in lower yields in the retail real estate market.

“The sector faces several challenges due to a tough financial environment, pushing property managers to employ prudent methods in a bid to retain tenants and also to target international anchor tenants,’’ Cytonn Real Estate’s Research Analyst, Joseph Wanga said.

The report show performance in key urban cities softened, recording average rental yields of seven per cent in 2019, 1.6 per cent lower than the 8.6 per cent recorded in 2018.

Wanga said that despite a drop in earnings, performance of the sector would be cushioned by increased entry of international retail brands into the local market.

He added we were likely to see increased activity from Naivas and Tuskys as they take advantage of the attractive rental rates.

 

“Despite the decline in yields, we remain upbeat about performance of the sector,” he said.

The report shows developers are now working to differentiate themselves in a bid to attract footfall by largely focusing on entertainment and recreational facilities.

Some such examples are Two Rivers which recently introduced Africa’s largest ferris wheel dubbed ‘The eye of Kenya while Karen Waterfront has incorporated a man made lake as well as a 1.2km track where shoppers can walk, cycle and jog.

The report forecast reduced development activity in Nairobi, with developers shifting to county headquarters in some markets such as Kiambu and Mt. Kenya.

“Kiambu County had the highest space deficit of 800,000 square feet while Machakos, Kajiado, Mt. Kenya and Mombasa had a space deficit of 200,000 square feet each,” the report stated.