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September 18, 2018

Retail sector on the dip in Mombasa

Le Rosey apartments which is among the many real estate ideas that are turning Kisumu's skylines for the better. /MAURICE ALAL
Le Rosey apartments which is among the many real estate ideas that are turning Kisumu's skylines for the better. /MAURICE ALAL

The office and retail sector in Mombasa is under-performing despite the region being recognised a major tourist attraction and its proximity to the Indian Ocean creating a demand for retail facilities.

Real Estate Investment Opportunity Report 2018 for Mombasa by Cytonn Investments indicates sluggish growth of the financial services industry, inadequate infrastructure and fears of insecurity have caused unwillingness among investors to develop the region hence hampering the office sector’s performance.

This has reduced the average rental yields in the market to 6.2 per cent, a 0.9 per cent points decline from the 7.1 per cent registered in 2016, attributable to reduced rental rates in the commercial office and retail sectors as developers seek to attract tenants.

The report indicates office sectors attained yields of 5.1 per cent rental yield, a 0.5 per cent points decline from 5.6 per cent recorded in 2016, which came in at Sh77.5 per square foot in 2018, a compounded annual drop of 11.5 per cent from the Sh99.0 per square foot recorded in 2016.

Malls recorded better returns with average rental yields of 7.4 per cent compared to the market average of 5.1 per cent, attributable to their relatively high rental rates with an average of Sh108 per SQFT compared to the market average of Sh77.5 per SQFT.

Grade C offices recorded the lowest returns with average rental yields of 3.2 per cent attributable to a low demand for such due to their tendency to lack sufficient amenities as majority of them are located within the central business district with limited parking space and quality space.

However, the report noted that the Mombasa market has potential for growth in future especially with the ongoing infrastructural developments and the return of political calm.

“The opportunity lies in site and service schemes in areas earmarked for infrastructural developments such as areas along Mombasa-Mariakani and Port Reitz roads with the land sector generally attaining a capital appreciation of 12.6 per cent on average,”Research Assistant Wacu Mbugua said.

Over the last two years, Nyali, Shanzu, Kizingo and Port Reitz areas have recorded growth in land prices by 0.9 per cent, 24.5 per cent, 8.9 per cent and 16.5 per cent respectively with an average of Sh109.4 million in 2016 to Sh115.4 million in 2018.

Kizingo and Nyali recorded the highest price per acre at Sh244.6 million and Sh134.0 million. In Port Reitz, land appreciation is attributable to ongoing expansion of road networks in the area such as the dualling of the Port Reitz Road.

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