WESTLANDS AND KAREN THE BEST RETAIL NODES WITHIN NAIROBI COUNTY KENYA METROPOLITAN
By Vera Shawiza
Cytonn Real Estate, the development affiliate of
Cytonn Investments, released their Kenya
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, the 2020 period
recorded subdued performance across the
various real estate themes resulting from the
tough operating environment as the economy
grappled with effects of the Coronavirus
pandemic. 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: i) 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, and, ii)
reduced occupancy rates which declined by
0.7% points Y/Y 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%.
The table below summarizes metrics that have
a possible impact on the retail sector, that is
the retail space supply, performance, retail
space demand, and concluding with the market
opportunity/outlook in the sector;
Majority of the Kenyan regions that is Kiambu
County, Mt Kenya region, Machakos, Mombasa
and Kajiado are undersupplied and therefore,
we expect to see developers shifting their focus
to these regions. However, in the short-run we
expect developers to scale back on the top-tier
regions that are oversupplied, that is, Nairobi,
Kisumu, Uasin Gishu and Nakuru with more
development picking up based on demand from
international retailers and investors as well as
improved financial environment
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, we
expect to see developers shifting their focus to
these regions. This will be supported by
demand from international retailers and
expansion by local retail chains
The retail sector performance in the Nairobi
Metropolitan Area declined by 5.4% and 4.7%,
respectively to record rental yields of 8.0% and
occupancy rates of 75.1%, respectively. Nairobi
and Mt Kenya were the best performing region
with average rental of 8.6% and 8.0%,
respectively. Kisumu’s performance dropped
significantly due to increased mall supply
The retail sector performance recorded a
decline of 0.3% and 0.7% points in average
rental yields and occupancy rates, respectively,
coming in at 6.7% and 76.6%, respectively
Nairobi and Mt. Kenya were the best performing
regions with average rental yields of 7.7% and
7.5%, respectively, attributable to relatively high
demand for quality retail space demand for
space in malls.
We expect the sector’s performance to be
cushioned by entry of local and international
retailers taking up prime retail space left by
their troubled counterparts.
Despite four major cities i.e. Nakuru, Uasin
Gishu, Kisumu and Nairobi being oversupplied,
the rest are undersupplied including Kiambu
with a retail space demand of 0.8mn SQFT
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
The outlook for the sector is NEUTRAL and we
expect to witness increased development
activity in areas outside Nairobi, with
developers shifting to satellite towns and
county headquarters in markets such as
Kiambu and Mt. Kenya that have an existing
retail space demand of 0.6 mn and 0.7 mn
SQFT, respectively.
Cytonn Investments is an independent
investment management firm, with offices in
Nairobi – Kenya and D.C. Metro – U.S. We are
primarily focused on offering alternative
investment solutions to individual high net-
worth investors, global and institutional
investors and Kenyans in the diaspora
interested in the high-growth East-African
region. We currently have over Kshs 82.0 billion
of investments and projects under mandate,
primarily in real estate.
Cytonn Real Estate is Cytonn’s development
affiliate, which is focused on developing
institutional grade real estate targeted at
specific institutional, high net-worth and
Diaspora investors. Collective, Cytonn
Investments and Cytonn Real Estate manage
over Kshs. 82 billion of real estate projects.
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