RETURNS

Retail market has the highest yield in Kenya's real estate- report

In Summary

•The growth in the formal retail sector was buoyed by exponential growth in activity from both retailers to developers.

•Real estate remains the most preferred asset for investment across the continent.

QUALITY: A commercial building in NairobI’s Eastlands. There are more retail spaces now available in the city.
QUALITY: A commercial building in NairobI’s Eastlands. There are more retail spaces now available in the city.

Retailers in Kenya's real estate sector recorded the highest prime yield at 9 per cent with prime rent of $42 (Sh4440) per square meter per month, according to Knight Frank's Africa report.

The growth in the formal retail sector was buoyed by an exponential growth in activity from both retailers to developers.

 
 
 

However, a significant influx of international retailers including Carrefour, LC Waikiki, and Shoprite has reduced the dominance of local retailers.

The historic unprecedented supply of formal retail space in 2017 has led to longer letting lead times for new developments resulting in a predominantly tenant favoured market.

Considerable opportunity for expansion, however, exists outside Nairobi following the devolution process.

The industrial market followed with 8.5 per cent prime yield with prime rent of $6(Sh600) per square meter per month.

The recent improvements in infrastructure in Nairobi including the construction of the various bypass roads and completion of the Phase 2A SGR project are likely to be a catalyst for more development on these new industrial corridors away from the historical industrial areas.

According to the report, the prime industrial sector in Africa remained relatively undersupplied with an increase in demand due to various economic diversification initiatives adopted by different governments.

 On the contrary, the prime residential market softened with a reduction in transaction volumes and a drop in the sale and rental values across the country with a prime yield of 5.5 per cent from a prime rent of $4000(Sh424,000) per square metre per month.

 
 

With the coronavirus pandemic being experienced in the country leading to an economic crisis the residential market is still experiencing bad business.

James Kanja, landlord at Kiambu's Mugumo estate has had to cut the rent he received from his tenants by half, worsening the residential business.

“I received a text message from the landlord confirming that i will pay half of what I pay for my two-bedroom house,” said Fidelis Kabunyi a tenant at the estate.

Kanja said he slashed the rent as he understood his tenants are also in economic distress with children and the house and some not going to work.

“Even if I did not cut the rent, most likely my tenants would not have been able to raise the full amount thus why I cut the rent,” said Kanja.

 

 Nairobi remains a major commercial hub and a favourite location for multinationals looking for regional headquarters.

Real estate remains the most preferred asset for investment across the continent.

“The sector remains the most preferred asset for investment across the continent for investors in their hunt for yield,” said James Lewis, Managing Director Middle East and Africa at Knight Frank

Africa’s economic cycles, geopolitics, and currency fluctuations continue to impact the real estate sector greatly.

The sector continues to evolve towards sophistication as evidenced by the increase in prime real estate demand across all markets studied.

Improvements in infrastructure connectivity and monetary integration are some initiatives expected to result in the key cities in Africa developing as global business hubs.

“Moving forward we anticipate a period of market correction and stabilisation in a majority of the markets in the short term but remarkable growth in the long term as Africa continues to grow,” said Lewis.