Real Estate shows signs of recovery after prolonged elections

The Real Estate sector has continued to show signs of recovery following conclusion of the extended electioneering period and in the first quarter of 2018, the sector has experienced increased activity in residential, retail, hospitality and commercial fields.

According to Cytonns 1st quarter of 2018 review, the sector, however, still faces challenges such as oversupply in some areas such as commercial office that had an oversupply of 4.7 metre square feet in 2017 and is expected to increase by 12.8 percent to 5.2 metres square foot in 2018.

Johnson Denge, Cytonn’s Senior Manager Regional Markets said on Thursday, that low access to finance by Real Estate Developers following the enactment of the interest rate caps is also a major challenge.

We remain cautiously optimistic about the positive performance of the Real Estate sector driven by encouraging demographic trends such as rapid urbanization that currently stands at 4.4 per cent against a global average of 2.1 percent, he said.

The Manager also noted that rapid population growth rates of also 2.6 per cent against a global average of 1.2 per cent is positive as well as sustained infrastructural development, with the government set to build 10,000 kilometres of road networks in the next 5-years.

Denge says this will open up areas for Real Estate development and a better operating environment due to political calm after the end of the extended election period last year.

He explained that the sector recorded remarkable growth of apartments, especially in satellite towns such as Ruiru and Kikuyu, which had attractive returns averaging at 15.8 percent compared to the market average of 11.0percent.

These areas are attractive for both developers and property buyers setting the stage for Real Estate development, ostensibly due to relatively affordable prices of both land and property, he said.

In Commercial Office, Denge said investors seeking exposure should focus on pockets of value such as Grade A offices and serviced offices, which are in short supply and offer high returns with market shares of 24.0 percent and average yields of 9.8 percent for Grade A, and a market share of 0.35 percent and average yields of 13.4 percent for serviced offices compared to the average rental yield of 9.2 percent for conventional office spaces.

The opportunity in the retail sector is in suburban malls in areas with low supply, such as County Government Headquarters that are increasingly witnessing an increase in population as a result of devolution, he added .

In hospitality, the Manager said the opportunity is in differentiated concepts such as serviced apartments, which recorded high average occupancy rates of 72 per cent compared to 50.6 percent for hotels in Nairobi.

At the same time, Upper Hill offers investors the best opportunity due to higher returns, with average rental yields of 6.6 percent compared to a market average of 5.8 percent and a low supply with a market share of just 8.6 percent , of the total existing room stock, Denge said.

Analysts say Kenya, in particular, has become a lightning rod for investment as both local and foreign investors are looking into diversifying their investments across multiple market segments.

The resuscitation of the property sector would be driven by President Uhuru Kenyatta’s multi-trillion-shilling affordable homes programme, a hopeful review of the interest rate cap and a return to political certainty following the conclusion of last year’s election cycle which slowed down developers, investors and home buyers.

Source: Kenya News Agency