Kenya’s real estate sector records 11.3 per cent drop in total returns

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Kenya’s Real estate sector recorded an 11.3 per cent dip in its 2017 total returns to stand at 14.5 per cent, a new Cytonn Real estate 2017 review report shows.

The drop shows a slow-down in real estate operators’ performance having recorded 25.8 per cent growth 2016.
According to Cytonn chief Investment officer Elizabeth Nkukuu, the drop is attributed to political uncertainty brought about by the extended electioneering period and thus cautious investors postponed making purchase decisions.

Other reasons included constraints by oversupply in some segments such as the commercial office, and credit constrains due to the interest rate cap that resulted in slower credit to the private sector growth from a five year compound annual growth rate of 14.4 per cent to a low of 2.4 per cent as at October 2017.

Development activity reduced evidenced by the 18.4 per cent reduction in the value of building approvals in Nairobi between January and July 2017 to Sh149.5 billion from Sh183.2 billion during the same period in 2016.

“The slowdown in performance was as a result of a steep decline in capital appreciation brought about by stagnated land and property prices indicating slowed demand in 2017,” Nkukuu said.

On sector performance, Real estate recorded rental yields of 9.6 per cent in retail, 9.2 per cent in commercial office and 5.2 per ent in residential sector, resulting to an average rental yield for the real estate market of 8.0 per cent, compared to 7.8 per cent in 2016.

Capital appreciation in Nairobi and its metropolis averaged at 6.5 per cent in 2017 from 18.0 per cent in 2016.

…the drop is attributed to political uncertainty brought about by the extended electioneering period and thus cautious investors postponed making purchase decisions.

The residential market, rental yields increased marginally to 5.2 per cent in 2017 from 4.9 per cent in 2016, attributable to a slight increase in occupancy rates showing sustained demand for rental properties.

Total returns to investors in this sector declined by 2.6 per cent to 10.3 per cent from last year’s average of 12.9 per cent, attributable to slow price appreciation rates in 2017 as a result of buyers’ wariness which resulted in slower demand.

The commercial office sector recorded softening of rental yields of 9.2 per cent in 2017 from 9.4 per cent in 2016 and reduced occupancy to 84.6 per cent on average from 86.0 per cent in 2016.

“The low performance in the office sector can be attributed to reduced economic activities during the electioneering period and an oversupply of 3.2 million square foot in Nairobi that is expected to grow to 3.9 million SQFT in 2018,” Cytonn Real Estate manager, Johnson Ndege said.

The retail sector in Nairobi similarly recorded reduced yields to 9.6 per cent in 2017 from 10.0 per cent in 2016 while occupancy rates declined to 80.3 per cent from 89.3 per cent in 2016 attributed to increased supply of retail space in Nairobi alone through the opening of malls such as Two Rivers and a tough operating environment characterised by reduced credit supply.

“Notably, the sector, in 2017, witnessed paradigm shifts with the closure of several Nakumatt branches due to insolvency and cash-flow challenges leading to increased foothold of international retailers such as Carrefour and Souk Bazaar and local retailers such as Tuskys and Naivas taking up space previously occupied by former leading retailer,” Research analyst at Cytonn Nancy Murule said in a Press statement to BizNews.

The hospitality sector struggled during the year due to concerns over security reasons during the electioneering period and thus the average daily rate of 3,4 and 5-star hotels in Nairobi declined by 3.9 per cent to Sh11.78 billion in 2017 from Sh12.27 billion in 2016

The hospitality sector struggled during the year due to concerns over security reasons during the electioneering period and thus the average daily rate of 3,4 and 5-star hotels in Nairobi declined by 3.9 per cent to Sh11.78 billion in 2017 from Sh12.27 billion in 2016 while room occupancy declined by 4.6 per cent points to 50.7 per cent from 55.3 per cent in 2016.

Land sector continued to attract developers and investors, informed by the positive performance recorded across various locations despite the political uncertainty during the year.

This saw the Nairobi Metropolitan area record an appreciation of 6.5 per cent in 2017 leading to a 6-year compound annual growth rate of 17.4 per cent.

Satellite Towns such as Utawala, Juja, Athi River, Ongata Rongai and Ruiru recorded the highest capital appreciation with a 6-year compound annual growth rate of 18.5 per cent due to improvement of infrastructure opening up these areas for development.


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Muhatia
Trust is my currency, biscuits are my best snacks. A business story by me that has sparked change, informed and made a positive difference is what makes me going. I yearn to achieve more through writing Reach me via editor@biznews.co.ke