Outlook for Kenyan Real Estate Sector Remain Sluggish

Unregistered Investment and Fund Management Firms

Edwin H. Dande - Chief Executive Officer at Cytonn Investments speaking during the Investments Analysts and Investors Open Day.

Kenyan real estate sector outlook remains sluggish with rental revisions in terms of uptake, rental yields, capital appreciation, and total investor returns given the oversupply of retail and office spaces, according to Cytonn Q1’2019 Real Estate Market Review.

“As such, we maintain a neutral outlook for the real estate sector mainly constrained by increased supply in the market and limited access to financing for both developers and off-takers,” it said in a research note released on Monday.

The sector softened in Q1’2019, with sectors such as office and retail registering a decline in rental yields by 0.1% points and 0.5% points, to 8.0% and 8.5% from 8.1% and 9.0%, respectively in FY’2018, while the residential sector recorded 0.5% annualized price appreciation, 3.7% points lower than 4.2% in FY’2018.

This was attributed to limited access to financing by developers and end users, with private sector credit growth coming in at 3.4% in February 2019, compared to a 5-year (2014-2019) average of 12.4%.

Two, high land and construction costs, especially in the Nairobi Metropolitan Area, and increased supply in selected sectors such as the commercial office and retail sectors with a surplus of 5.2mn SQFT and 2.0mn SQFT, respectively, as at 2018.

However, Cytonn Real Estate believes that the sector still has pockets of value.

“This is in themes such as housing for lower-middle to low-income earners in the residential sector, differentiated concepts such as serviced offices that attract yields of 13.4% such as Westlands, as well as areas with low supply of office space such as Gigiri and county headquarters driven by positive demographics, devolution, and sustained infrastructural development,” said Juster Kendi, Research Analyst at Cytonn.