The tough operating environment in Kenya has led to a subdued real estate performance across the various real estate themes.
This is according to the latest Cytonn Retail Sector Report-2020.
The report analyses the performance of the retail sector in Kenya through tracking the changes in occupancies, rental yields and rental rates. It also outlines the retail space demand, opportunity and outlook of the sector.
According to the report:
In the retail sector, performance declined recording average rental yields of 6.7%, 0.3% points lower than the 7.0% recorded in 2019.
The subdued performance is largely attributed to reduction in rental rates in a bid to attract tenants amid a tough economic environment which saw the rental rates in the sector post a 2.1% decline to Kshs 115.1 per SQFT in 2020, from Kshs 118.0 per SQFT in 2019.
Also the reduction in occupancy rates which declined by 0.7% points year-on-year from 77.3% in 2019 to 76.6% in 2020 attributable to reduced demand for physical retail space due to growing focus on e-commerce and scaling down of retailers in the wake of reduced revenue inflows.
Rental yields within the Nairobi Metropolitan Area (NMA) declined by 0.5% points to 7.5% from 8.0% in 2020 attributable to decline in demand for space evidenced by a drop in occupancies by 0.6% points from 75.1% in 2019 to 74.5% in 2020 and marginal decline in rent of by 0.1% to Kshs 168.5 from Kshs 168.6 per SQFT.
The subdued performance is also attributed to the current oversupply of retail report spaces by 3.1 mn SQFT, shifting focus to e-commerce leading to decline in demand for physical retail spaces, constrained consumer spending given the tough economic environment and exit by some retailers to cushion themselves against the negative effects of the Coronavirus pandemic.
Mt. Kenya region offers the best investment opportunity to retail space developers, with high rental yields of 7.7%, 0.1% points higher compared to market averages of 6.7%, the region currently has an existing retail space deficit of 0.7 mn SQFT, the under supply signals high demand.
Within the Nairobi Metropolitan Area (NMA), the opportunity lies in Westlands and Karen which were the best performing retail nodes with rental yields of 9.8% and 9.2%, respectively attributed to relatively high demand as the neighbourhood host affluent residents with high consumer purchasing power, ability to charge a premium on rates on the high quality retail spaces, relative good infrastructure thus ease of access into the areas and relatively high occupancy rates of 80.9% and 79.1%, respectively above the market average of 74.5%.
Main urban cities such as Nairobi and Kisumu have an existing oversupply of space while regions such as Kiambu County and Mt Kenya region are undersupplied and therefore, it is expected that developers will be shifting their focus to these regions.
“This will be supported by demand from international retailers and expansion by local retail chains. Nairobi, Kisumu and Nakuru are the most oversupplied areas by 3.1 mn, 0.3 mn and 0.2 mn SQFT of space, respectively while areas such as Mt Kenya are under supplied by 0.7 mn SQFT” read the report