This archive report was first published on 16 October 2019.
Cytonn Report Highlights Retail Space Opportunities in Kenya ¶
Published on October 16, 2019, Cytonn Real Estate's report, 'Increased Market Activity to Promote Retail Growth,' highlights retail space opportunities in Kenya, with a focus on county headquarters in markets such as Mombasa, Kiambu, and Mt. Kenya regions.
The report, which covers eight retail nodes in Nairobi, Nairobi Satellite Towns, and key urban cities such as Eldoret, Mombasa, Kisumu, and the Mt. Kenya region, notes that the retail sector recorded an additional 1.1 million square feet of mall space into the market in 2018, leading to a supply of 12.5 million square feet in 2019.
According to the report, the retail sector in key urban cities softened, recording average rental yields of 7.0% in 2019, 1.6% points lower than the 8.6% recorded in 2018. The reduced performance is largely attributed to a 10.6% reduction in rental rates to Ksh118 per square foot (SQFT) in 2019, from Ksh132 per SQFT in 2018.
The report highlights that there was a surplus in retail space coupled with stiff competition between malls in some nodes such as Nairobi, which recorded an oversupply of 2.8 million SQFT.
Joseph Wanga, a Research Analyst at Cytonn Real Estate, noted that 'despite the decline in yields, we remain upbeat about the performance of the sector as it is still cushioned by increased market activity driven by the entry of international retailers into the Kenyan market and the expansion efforts by local retailers such as Naivas and Tuskys as they take advantage of the attractive rental rates.'
The report identifies the main drivers for the sector as positive demographics, including Kenya's urban population expanding at an annual rate of 4.3%, continued change in tastes and preferences by a growing middle class towards international products, infrastructure growth, and the growth of Small and Medium-Sized Enterprises (SMEs).
However, the sector faces several challenges due to a tough financial environment, pushing property managers to employ prudent methods to retain tenants as well as target international anchor tenants.
The report highlights that the Nairobi Metropolitan Area (NMA) Retail Performance declined by 1.0% points to 8.0%, from 9.0% in 2018, attributed to an increase in retail space supply of 800,000 SQFT within the past year.
According to the report, the key cities covered have a total mall space supply of 16.1 million SQFT against a demand of 14.4 million SQFT, resulting in an oversupply of 1.7 million SQFT. Nairobi, Uasin Gishu, Kisumu, and Nakuru counties were the most over-supplied areas by 2.8 mn, 0.2 mn, 0.2 mn, and 0.1 mn SQFT, respectively.
Wacu Mbugua, a Research Analyst at Cytonn, noted that 'the outlook for the sector is neutral and we expect to witness reduced development activity in Nairobi, with developers shifting to county headquarters in some markets such as Kiambu and Mt. Kenya that have retail space demand of 0.8mn and 0.2mn SQFT, respectively.'
The report is available online: Link here
