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The country’s residential sector has remained relatively stable with most sub-sectors in the real estate industry softening in performance in the first half of this year, a report shows.

According to the report, the land sector recorded an overall annualised capital appreciation of 1.4 per cent.

This saw the asking land prices in low-rise residential areas record the highest annual growth of 3.8 per cent, driven by the increased demand for affordable land according to The Cytonn Real Estate’s Half One of 2020 Markets Review.

Average rental yields softened across all sectors coming in at 7.4 per cent, 7.3 per cent and 5.1 per cent, for retail, office and residential sectors, respectively, from 7.7 per cent, 7.8 per cent and 5.2 per cent in the first quarter of the year.

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“The residential sector remained relatively stable with most sectors softening in performance, albeit marginally,” said Wacu Mbugua, research analyst at Cytonn.

“Dagoretti, Ridgeways and Westlands recorded the highest annual price appreciation at 3.1 per cent, 3.0 per cent and 1.6 per cent, respectively.”

According to the report, constrained financing, supply chain constraints, and reduced revenues arising from slow market uptake due to Covid-19 are expected to remain as key challenges facing the real estate sector.

Others are the downward pressure on prices and rents.

In the commercial real estate, Gigiri, Karen and Westlands were the best performing office nodes in the first half of 2020, recording rental yields of 8.9 per cent, 8.3 per cent, and, 8.2 per cent, respectively.

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This was due to their superior locations and availability of top-quality offices, enabling them to charge a premium on rental prices.

In the retail sector, Westlands and Karen were the best performing retail nodes with average rental yields of 9.8 per cent and 9.2 per cent.

The detached units market, however, saw Ruiru post the cheapest units at more than half the price of similar units at Lavington.

This was the lowest average annual price appreciation and lowest average occupancy, perhaps outlining the desire for more people to live in estates just around the central business district.

“The detached units’ market recorded an average annual price appreciation of 0.3 per cent compared to the apartment market’s 0.2 per cent - attributable to less supply of standalone units coupled by growing demand by homebuyers,” said Cytonn in the report.

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“We expect uptake to remain suppressed this year as cash flows for investors and homebuyers come under pressure in light of the ongoing pandemic.”

As such, the opportunity is in low-cost housing in satellite towns such as Thindigua and Ruaka which continue to exhibit high demand attributable to their proximity to the key commercial nodes, and suburbs such as Westlands and South C for investors seeking attractive rental yields.

Office spaces, however, continued to face occupancy crisis amidst a pandemic that has forced companies to restructure and have employees work from home.

“The sector recorded a 0.5 per cent and 1.7 per cent declines in average rental yields and occupancy rates, to 7.3 per cent and 80 per cent in the first half of 2020, from 7.8 per cent and 81.7 per cent, respectively, in the financial year 2019,” said Cytonn.

The decline is attributed to the ongoing Covid-19 pandemic which has led to reduced demand in office spaces as firms have put on hold expansion plans and adopt a wait and see approach. Others have opted to scale down operations amidst declining revenues,

The land sector, however, recorded an overall annualised capital appreciation of 1.4 per cent with the investment opportunity lying in sub-markets such as Karen, Spring Valley, and Kasarani.

The areas recorded relatively high annualised capital appreciation of 5.6 per cent, 5.4 per cent and 5.7 per cent, respectively.

Satellite towns such as Ruaka for un-serviced land, and Ruiru for site and service schemes recorded an average annualised capital appreciation of 5.2 per cent, and 5.8 per cent, respectively.

The hospitality sector was significantly affected by the Covid-19 pandemic which led to a slowdown of operations following the cancelling of meetings, conferences and events, the banning of all international flights, and reduced local direct flights.

However, the sector is expected to recover to commence in the near term on the back of government policies such as the budget allocation towards tourism marketing and support for hotel refurbishment through soft loans.

Covid 19 Time Series

 


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