Page 13 - BEA December 2019 - January 2020

Briefing

The Kenyan Retail Sector Performance

Softened in 2019 – Cytonn

With rental yield declining by 1.6% to 7.0% in 2019 from 8.6% in 2018, Mt. Kenya and
Nairobi were the best performing regions, recording rental yields of 8.6% and 8.0%
respectively.

largely attributed to a 10.6% reduc- anchor tenants’’ noted Joseph.
tion in rental rates to Kshs 118 per
ytonn Real Estate re- SQFT in 2019, from Kshs 132 per The Nairobi Metropolitan Area
leased the Kenya Retail SQFT in 2018, and a surplus in retail (NMA) Retail Performance declined
CReal Estate Sector Report space coupled with stiff competition by 1.0% points to 8.0%, from 9.0% in
2019, highlighting the performance between malls in some nodes such as 2018 attributed to an increase in retail
of the retail real estate sector in Ke- Nairobi, which recorded an oversup- space supply of 0.8 mn SQFT within
nya in 2019. ply of 2.8 mn SQFT. Cytonn Real the past year with the addition of
Estate’s Research Analyst, Joseph malls such as Waterfront, The Well,
Themed “Increased Market Activ- Wanga, noted that “Despite the Mountain View and the expansion
ity to Promote Retail Growth”, the re- decline in yields, we remain upbeat of Westgate and Sarit Centre malls.
port showed investment opportunity about performance of the sector as Kilimani, Ngong Road and West-
lies in Kenyan County headquarters it is still cushioned by increased lands were the best-performing retail
in some markets such as Mombasa, market activity driven by the entry of nodes within the NMA recording
Kiambu and Mt. Kenya that have international retailers into the Kenyan rental yields of 9.9%, 9.2% and 9.2%,
retail space demand of 0.2mn, 0.8mn market and the expansion efforts by respectively, in 2019 attributed to
and 0.2mn SQFT, respectively. local retailers such as Naivas and the nodes serving the upper middle
Tuskys as they take advantage of the income and high-end population.
The report focused on the per- attractive rental rates.’’ According to the report, the key
formance of the retail real estate in cities covered have a total mall space
Kenya based on rental yields, oc- The main drivers for the sector supply of 16.1 mn SQFT against a
cupancy rates, as well as demand and were; demand of 14.4 mn SQFT, resulting
supply, to identify the trends, with the in an oversupply of 1.7mn SQFT.
research conducted on 8 retail nodes (i) positive demographics as Kenya’s Nairobi, Uasin Gishu, Kisumu and
in Nairobi (Westlands, Kilimani, urban population continues to expand Nakuru Counties were the most over-
Karen, Ngong Road, Thika Road, at an annual rate of 4.3%, supplied areas by 2.8 mn, 0.2 mn, 0.2
Kiambu & Limuru Road, Mombasa mn and 0.1 mn SQFT, respectively.
Road and Eastlands), Nairobi Satel- (ii) continued change in tastes and Kiambu County was the highest
lite Towns and the key urban cities preferences by a growing middle under-supplied area by 0.8 mn SQFT
of Eldoret, Mombasa, Kisumu and class towards international products, while Machakos, Kajiado, Mt.Kenya
the Mt. Kenya Region, which include thus, creating a niche for international and Mombasa were under-supplied
Nyeri, Meru and Nanyuki Towns. retailers, area by 0.2 mn SQFT each.
According to the report, the retail
sector recorded an increase of 1.1 mn (iii) infrastructure has encouraged a “The outlook for the sector is
SQFT of mall space into the market growth in mall space as this encour- neutral and we expect to witness
in 2018, leading to a supply of 12.5 ages tenancy and footfall, and reduced development activity in
mn SQFT in 2019, from 11.4 mn Nairobi, with developers shifting to
SQFT in 2018. (iv) growth of Small and Medium- county headquarters in some markets
Sized Enterprises (SMEs). ‘’Howev- such as Kiambu and Mt. Kenya that
Performance in key urban cities er, the sector faces several challenges have retail space demand of 0.8mn
softened, recording average rental due to a tough financial environment, and 0.2mn SQFT, respectively,” said
yields of 7.0% in 2019, 1.6% points pushing property managers to employ Wacu Mbugua, Research Analyst at
lower than the 8.6% recorded in prudent methods in a bid to retain Cytonn.
2018. The reduced performance is tenants and also to target international

Building East Africa | December / January 2020 A
Promoting sustainable development 11