Mombasa and Mt Kenya region provide the best returns for retail real estate development, according to a report by Cytonn Investments. Apparently, Mombasa has a high retail space demand of 300,000 square feet with yields of 8.3% and occupancy of 96.3%. Similarly, the Mt Kenya region has retail space demand of 200,000 square feet with occupancy of 84.5% and yields of 9.9%.
The report also found that there has been an increase in the supply of retail space in the past year, especially in Nairobi, where it grew by 300,000 square feet to 6.5 million square feet in 2018, a 4.8% difference from 2017. It was predicted that by 2020, retail space would expand by a further 1.3 million square feet in Nairobi, with a CAGR of 9.5%. Cytonn, which surveyed various parts of the country, revealed that there was an oversupply of space in Nairobi, Eldoret, Kisumu and Nakuru, whereas Kiambu, Mombasa, Kajiado, Mt. Kenya and Machakos were undersupplied.
Speaking during the release of the report, Research Analyst Juster Kendi noted that “the increase in supply is as a result of increased development activity by mall developers seeking to tap into the widening middle class whose purchasing power has been on a rise, and have an appetite for sophisticated lifestyles, as well as the continued infrastructural development.”
In terms of performance over time, in 2018, the retail sector’s performance improved, recording average rental yields of 8.6%, 0.3% points higher than the 8.3% recorded in 2017. Occupancy rates also increased by 5.8% points from 80.2% in 2017. Senior Research Analyst, Nancy Murule, attributed the improved performance to recovery of the market from the tough economic environment in 2017, prudent methods employed by developers to attract clientele, enhanced entry and expansion of international retailers, and provision of high-quality spaces in line with international standards.
It was further noted that the key drivers for the retail sector in Kenya were mainly high urbanization and population growth rate, increased foreign investment with international developers such as Actis, Avic and CATIC building some of the country’s largest malls, increased infrastructural development opening up new areas for development, and e-commerce diversifying retailers’ product offering and customers’ experiences. Challenges facing the sector include increased competition, fragmented markets mainly concentrated in urban areas, and inadequate financing.
The report is available online here.
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