A fresh report by Cytonn Research released yesterday shows that Westlands and Karen areas were the best performing nodes with average rental yields of 9.7% and 9.4%, respectively which were 2.2% and 1.9% points higher than Kenya’s market average of 7.5%.

[From left] The Waterfront, Galleria and The Hub Shopping Malls in Nairobi’s Karen Suburb. Photo: stavica.com

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NAIROBI, Kenya: The Nairobi Metropolitan Area[NMA] retail market recorded average rental yields of 7.5% similar to 2020, with average occupancy rates coming in at 75.8%, a 0.6% increase from the 75.2% realized in 2020, attributed to an increased demand for retail spaces evidenced by retailers such as Naivas Supermarkets aggressively taking up new spaces as well as spaces previously occupied by troubled retailers and improvement in infrastructure opening up areas for retail investments.  

This is according to Cytonn Research, a Kenya Retail Report 2021 themed “Rapid Expansion by Retailers to Cushion the Retail Sector,released yesterday, which highlights the performance of the Kenyan retail sector based on research conducted on 9 nodes within the NMA, as well as other key urban cities in Kenya which include Nakuru, Kisumu, Eldoret, Mombasa, and the Mount Kenya Region.

Rental rates remained subdued at Kshs 168 per SQFT in 2021 when compared to the Kshs 169 per SQFT recorded in 2020 as a result of landlords offering lower rental rates to attract new tenants as well as retain existing ones, and the growing e-commerce thereby causing reduced demand for physical retail spaces.

PERFORMANCE BY NODES

The Cytonn Research shows that Westlands and Karen areas were the best performing nodes with average rental yields of 9.7% and 9.4%, respectively which were 2.2% and 1.9% points higher than the market average of 7.5%.

This can mainly be attributed to higher average rental and occupancy rates that they fetch at Kshs 209 per SQFT and 80.4%, respectively, against the market average of Kshs 168 per SQFT and 75.8%, respectively, adequate amenities and infrastructure, and the undersupply of retail stores in Karen thus driving higher demand for the available ones.

Eastlands ranked last, recording declines in the average rental yields by 0.2% points from 6.1% in 2020 to 5.9% in 2021 due to the lower rental rates which declined by 1.5% from Kshs 137 per SQFT to Kshs 135 per SQFT.

The occupancy rates came in at 72.5%, 1.3% points lower than the market average of 75.8% as a result of the relatively high competition from the existing informal retail centers and stores.

The table below shows the submarket performance of nodes in the Nairobi Metropolitan Area (NMA):

PERFORMANCE BY CLASS

To analyze the performance of malls by class Cytonn Research classified malls into three bands as below: 

Regional Centers / Destination Malls: These malls are characterized by their higher lettable areas ranging between 400,000 – 800,000 SQFT, they usually have more than one anchor tenants. Some examples include; Sarit Centre, Two Rivers Mall, Garden City Mall and Next Gen Mall,

Community Centers: They are the second largest malls after the destination malls with a lettable area ranging between 125,001 – 400,000 SQFT, and can also host more than one anchor tenants. They include malls such as Thika Road Mall, Valley Arcade, Gateway Mall, and the Village Market, among others, and,

Neighborhood Centers: These malls are characterized by their lettable areas ranging between 20,000 SQFT hence can only host a single anchor tenant. They include The Well in Karen, Ciata City Mall along Kiambu Road, and Unicity Mall along Thika Road, among others.

On performance by class, destination malls were the best performing recording average rental yields of 10.3%, attributable to high rental charges averaging at Kshs 257 per SQFT, 34.2% points higher than the market average of Kshs 169, as the malls charge premium rents for the high-quality retail space, facilities provided, and have higher footfall due to the presence of international retailers who have preference for destination malls.

Moreover, the destination malls recorded the highest average occupancy rates of 81.7% against the market average of 75.9% in the NMA. Community malls recorded an average rental yield of 7.8%, 0.2% higher than the market average of 7.6%, with the average occupancy and rental rates coming in at 77.2% and Kshs 169 per SQFT, respectively against a market average of 75.9% and 7.6%, respectively as a result of an improved demand.

Neighborhood malls recorded the lowest rental yields averaging 6.7% against the market average of 7.6%, attributed to lower rental rates averaging Kshs 151 per SQFT, 11.9% lower than the market average of Kshs 169 per SQFT. Average occupancy rates for neighborhood malls came in at 72.8% against the market average of 75.9% as a result of a slow but rising demand for physical retail spaces. The summary of performance by class is as shown below:

Retail Sector performance in Kenya over time

In 2021, the Kenyan retail sector performance recorded 0.1% points increase in the average rental yields to 6.8%, from 6.7% in 2020. Average occupancy rates and rental rates realized an increase of 1.8% points and 2.2%, respectively, to 78.4% and Kshs 118 per SQFT in 2021 from 76.6% and Kshs 115 per SQFT in 2020, respectively, mainly attributed to an improved business environment as well as local and international retailers such as Giordano, Carrefour, Optica Limited and Naivas aggressively taking up new retail spaces as well as spaces previously occupied by troubled retailers such as Tuskys thus cushioning the overall performance of the retail market.

Lead image: The Hub shopping mall in Karen, Nairobi. Photo: traveldiscoverkenya.com

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