Apartments best bet as rental returns on the up

Apartments recorded the highest rental yields at 5.8 per cent in the first quarter of this year, a new industry report shows.

According to the Markets Review Report by Cytonn Real Estate, the development affiliate of Cytonn Investments, this was 0.6 per cent points higher than the overall residential market.

The report, released on Tuesday, highlights the current state of the real estate sector in terms of uptake, rental yields, capital appreciation and total investor returns.

“Apartments continued to be popular in the market largely driven by the growing middle-class bracket on the demand side and the need for profit maximisation for developers on the supply side, especially in light of rising land prices,” said Wacu Mbugua, a research analyst at Cytonn.

Langata, Athi River, Kilimani and Ruaka registered the highest returns to investors at 6.8 per cent, 6.7 per cent and 6.3 per cent respectively, boosted by constant demand from Nairobi’s young and working population.

According to the report, average rental yields improved marginally in the residential and commercial office sectors to 5.1 per cent and 7.8 per cent respectively from 5 per cent and 7.5 per cent in the last quarter of 2019.

The retail sector registered a marginal drop in rental yields to 7.7 per cent in quarter one of this year from 7.8 per cent in the fourth quarter of last year.

Capital appreciation for land in the Nairobi metropolitan area, the report said, came in at 0.2 per cent.

In terms of annual uptake, detached units stood at 18.7 per cent compared to apartments at 19.4 per cent.

The sector was largely constrained by a challenging financial environment that is expected to escalate with the ongoing coronavirus pandemic