MIXED-USE DEVELOPMENTS

Stalls eating into mixed used development domain

A drop in demand and constrained consumer spending as a result of a tough economic environment led to a 0.1 percentage point decline in rental yields

In Summary

•Mombasa Road and Eastlands areas have seen a decline in rental yields owing to competition from informal stalls

•Developers have however been advised to incorporate differentiated concepts such as serviced apartments and shared office spaces

Motorists drive along the Mombasa road highway towards the city centre in Kenya's capital Nairobi March 4, 2016
Motorists drive along the Mombasa road highway towards the city centre in Kenya's capital Nairobi March 4, 2016
Image: REUTERS

Mixed-use developments along Mombasa Road and Eastlands areas are recording decreased rental yields due to competition from informal stalls, according to investment firm Cytonn.

The Nairobi Metropolitan Area Mixed-Use Developments (MUDs) Report 2019 by the the firm established that the two nodes were the worst performing, with rental yields of 5.7 and 5.5 per cent respectively.

“We expect investors’ returns to be dependent on the composition of mixed-use concepts due to sectors such as retail and office having an oversupply of 2.8 million square feet and 5.2 million square feet, respectively as at 2018,” Cytonn Real Estate’s research analyst, Joseph Wanga said.

 

According to the report, a drop in demand and constrained consumer spending due to a tough economic environment led to a 0.1 percentage point decline in rental yields across Nairobi to an average 7.3 per cent compared to the same period last year.

Wanga however said MUDs still offer an attractive investment by providing diversified revenue streams for property owners and improving the overall return on investment.

“The outlook for Mixed-Use Developments (MUDs) is neutral mainly due to attractive returns compared to single-use themes despite oversupply in the retail and office sectors,” he said.

The report shows areas with high returns such as Kilimani and Limuru Road, which recorded rental yields of 9.1 per cent and eight per cent respectively have the greatest investment opportunity.

Developers have however been advised to incorporate differentiated concepts such as serviced apartments and shared office spaces as demand for more convenient spaces picks up pace.

“Investment opportunities lie in differentiated concepts which provide attractive returns of 6.4 per cent and 13.5 per cent, respectively, compared to the unserviced apartments and office performance of 5.1 per cent and 7.9 per cent, respectively,” Cytonn research analyst Wacu Mbugua said.

The report focused on the performance of mixed-use developments based on rental yields, occupancy rates, as well as annual uptake, and covered Westlands, Kilimani, Karen, Ngong Road, Thika Road, Kiambu and Limuru Road, Mombasa Road and Eastlands.