NAIROBI, KENYA, APR 5 ― The real estate sector in Kenya has continued to show signs of recovery following the end of last years’ prolonged elections, with the market recording increased investor appetite for property.
According to investment firm-Cytonn, key assets remain in the residential, commercial office, retail and hospitality sectors, which continue to attract investors while offering high returns.
This comes as the Kenyan economy is projected to grow by 5.5 per cent on average in 2018, according to Gross Domestic Product projections from 13 research houses, global agencies, and government organizations in quarter one of this year, inclusive of Cytonn’s projection of 5.4 per cent.
Inflation remains positive for 2018 with the average inflation rate for quarter one of 2018 coming in at 4.5 per cent compared to 8.8 per cent in a similar period in 2017.
In residential, the opportunity is mainly in apartments in growing satellite towns such as Ruiru and Kikuyu, which recorded attractive returns averaging at 15.8 per cent compared to the market average of 11.0 per cent.
These areas are attractive for both developers and property buyers due to infrastructural developments opening up the areas for real estate development, and relatively affordable prices of both land and property.
Investors seeking exposure in commercial office should focus on pockets of value such as Grade A offices and serviced offices, the investment firm has advised in its quarter one 2018 review.
These commercial office type are in short supply and offer high returns with market shares of 24.0 per cent and average yields of 9.8 per cent for Grade A, a market share of 0.35 per cent, and average yields of 13.4 per cent for serviced offices compared to the average rental yield of 9.2 per cent for conventional office spaces.
In retail, the opportunity is in suburban malls in areas with low supply, such as county government headquarters that are increasingly witnessing an increase in population as a result of devolution.
The hospitality sector has opportunity in differentiated concepts such as serviced apartments, which recorded high average occupancy rates of 72.1 per cent compared to 50.6 per cent for hotels in Nairobi.
In terms of nodes, upperhill offers investors the best opportunity due to higher returns, with average rental yields of 6.6 per cent compared to a market average of 5.8 per cent , and a low supply with a market share of just 8.6 per cent of the total existing room stock.
“We remain cautiously optimistic about the positive performance of the real estate sector driven by positive demographic trends such as rapid urbanization that currently stands at 4.4 per cent against a global average of 2.1 per cent and rapid population growth rates of 2.6 per cent against a global average of 1.2 per cent,” said Johnson Denge, Cytonn’s, Senior Manager, Regional Markets.
“Sustained infrastructural development, with the government set to build 10,000 kilometres of road networks in the next five-years which will open up areas for real estate development and a better operating environment due to political calm after the end of the extended election period last year,” he added.
However, the real estate sector in general still faces challenges such as oversupply in some themes such as commercial office that had an oversupply of 4.7 million square foot in 2017, the firm noted. This is expected to increase by 12.8 per cent to 5.2 million square foot in 2018.
The sector is also affected by low access to finance by real estate developers following the enactment of the rate caps.