MARKET UPDATE

Residential sector records highest returns in first quarter of 2021

Gigiri and Karen were the best performing submarkets in Q1’2021 recording rental yields of 8.3 and 8.0 per cent

In Summary
  • The residential sector recorded an improvement in performance with average total returns to investors coming in at 5.1 per cent year on year, up from 4.7 per cent recorded in FY’2020.
  • The retail and commercial office sectors recorded declines in rental yields to 7.4 and 6.8 per cent in Q1’2021.
DEMAND: Prospective buyers visit a development christened Kirichwa Shelters in Kilimani, Nairobi. Photo/FILE
DEMAND: Prospective buyers visit a development christened Kirichwa Shelters in Kilimani, Nairobi. Photo/FILE

The residential sector in real estate has continued to record improved perfomance, as the retail and commercial spaces continues to record a decline, the Cytonn Q1’2021 markets review shows

According to the report, the residential sector recorded an improvement in performance with average total returns to investors coming in at 5.1 per cent year on year, up from 4.7 per cent recorded in FY’2020.

The retail and commercial office sectors recorded declines in rental yields to 7.4 and 6.8 per cent in Q1’2021, from 7.5 and 7.0 per cent, respectively in full year 2020.

The land sector on the other hand recorded an overall annualized capital appreciation of 2.8 per cent, indicating that investors still consider land as a good investment asset in the long term.

The shift towards e-commerce due to the pandemic has been affecting the uptake of retail spaces.

In the residential sector, apartments recorded average total returns of 5.3 per cent year on year while detached units recorded an average total returns of 4.8 per cent.

Detached units in Rosslyn, Ruiru and Kitisuru recorded the highest average year on year returns at 6.7, 6.3 and 5.9 per cent, respectively, while apartments in Westlands, and, South C, recorded the highest average y/y total returns of 6.8, and 6.5 per cent respectively.

According to the report, Gigiri and Karen were the best performing submarkets in Q1’2021 recording rental yields of 8.3 and 8.0 per cent, respectively attributed to their superior locations, availability of high quality office spaces charging prime rental prices, relatively good infrastructure, and low supply of commercial office spaces within the markets.

In the retail sector, Westlands and Karen were the best performing nodes recording average rental yields of 10.1 per cent compared to the overall market average of 7.4 per cent.

The performance is attributed to presence of affluent residents who have a high consumer purchasing power with the areas hosting high end income earners, the ease of access to the areas, and, relatively high occupancy rates of above 81.0 per cent against the market average of 74.9 per cent.

For the land sector, the satellite towns recorded the highest annual capital appreciation of 7.2 per cent, this is attributed to the affordability of land, continued focus on affordable housing and improving infrastructure opening up the areas for development.

Cytonn's outlook of the real estate sector is positive for one sector-land, neutral for four sectors-residential, retail, hospitality and listed real estate, and negative for one sector-commercial office.