Traffic congestion is negatively impacting the uptake of mixed use developments along Mombasa Road and Eastlands, a new report has shown.
The Nairobi Metropolitan Area Mixed Use Development Report by Cytonn Real Estate shows the two nodes also experienced high competition from informal real estate developments resulting in lower asking prices and rental charges.
Mombasa Road and Eastlands were the worst performing, recording rental yields of 5.7 and 5.4 per cent respectively. This, while the same developments in the Limuru Road and Karen nodes registered 9.6 and 9.4 per cent growth in rental yields.
“Mixed Use developments are a viable investment opportunity subject to the developer striking the right balance between the incorporated uses,” Cytonn’s senior manager for regional markets Johnson Denge said.
He said other lucrative regions for establishing mixed use developments were Upperhill and Kilimani recording rental yield returns 8.7 and 8.6 per cent respectively.
Nairobi has seen increased mixed use real estate which integrates offices, homes and leisure, a move aimed at reducing overall commute time for the working class citizen.
According to Knight Frank’s Global Cities 2018 Report, these developments demonstrate that Nairobi is keeping up with the global trend where work and home life are coming together in mixed-use schemes. This emulates mature markets such as London, San Francisco, New York and Miami where development of mixed-use projects is relatively advanced.
The report further states that increased demand for integrated mixed-use developments in the city is backed by a rise in the overall numbers of employees in cities, an increase in the incomes of these employees and an enhanced desire to spend incomes in ways that support the successful expansion of these environments.
For instance, Oxford Economics forecast that households with annual incomes of $35,000-70,000 (Sh3.6 million- 7.2 million) in Nairobi will more than double between 2017 and 2027.
Mixed-use developments have higher returns compared to the market average of 7.5 per cent and generate operational synergies which complement each other making them more attractive to both investors and consumers.
“In destination mixed-use developments, retail space performs better due to the state-of-the-art facilities provided that attract clientele who are looking for an experience,” Cytonn Investment analyst Juster Kendi said.
They also posses multiple revenue streams which help spread out the project’s risk component while enabling effective land use while creating convenience for the consumer.