Rental homes in Upperhill suffered reduced yields in 2017 as the area becomes a commercial hub.
The Hass Property Index for the fourth quarter of 2017 shows that investors earned 6.66 per cent total returns, which is rental yields and price growth, on rented out apartments, the lowest since September 2010.
The report states that upcoming commercial buildings in the area have led to reduced supply of new residential houses which has in turn resulted in saturation of older modeled houses in the region.
“A high concentration in old stock has seen tenants move out in favor of new modern houses in Kilimani,” Hass Consult head of development consulting and research Sakina Hassanali said.
Increased supply in the old homes has forced landlords in the area to review rents downwards in order to stay competitive in the market.
The homeowners have also resorted to demolition of the old buildings to pave way for the development of new structures.
“With newly finished properties doubling up in the rental market, landlords with relatively old buildings are finding it hard to retain fashionable tenants who are keen on trendy and more spacious homes,” she said.
In the three months to December, according to the report, rent prices in Upperhill declined by 9.4 per cent with an average 11.7 per cent drop in the year.
The report shows, Upperhill has remained the most expensive place to purchase land with an acre averaging at Sh551 million.
Over the years investors have shown increased appetite for the region which is rapidly growing into Nairobi’s financial services district.
Hassanali said Upperhill was largely oversupplied in commercial space adding that it would take a few years for businesses to take up the space.
The report showed land in Kilimani was the second most expensive after growing by 0.3 per cent to an average of Sh442.9 million an acre quarter-on-quarter, followed by Westlands at Sh415 million.
An acre in Parklands averaged Sh411.5 million, while in Kileleshwa the asking price averaged
Sh288.5 million.
The survey found that Nairobi suburbs and satellite towns recorded the slowest growth rates since the index was launched, which Sakanali said was a result of the prolonged electioneering period.
“Land has traditionally defied political risk which is short-term but the repeat poll introduced a new level of risk that had not been priced in the market,” he said.
“The wait-and-see approach was prolonged by fears that it could extend and further put a break on activity in the land market.”