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Rents for serviced city apartments fall in tough year

By Peter Theuri | December 10th 2020

The average rental yields of serviced apartments in the Nairobi metropolitan area fell by 3.6 per cent this year amid depressed demand. 

According to a new report by Cytonn Real Estate, yields for the year declined to four per cent from 7.6 per cent last year.

The research attributed the decline to a reduction in monthly charges per square metre and occupancy in the wake of the coronavirus pandemic.

Monthly rents fell from Sh2,806 per square metre to Sh2,445 per square metre, while occupancies dipped from 79.4 per cent to 48.0 per cent.

“The decline in performance is attributable to subdued demand for hospitality facilities and services due to the Covid-19 pandemic, which saw the government ban all international flights and local flights into Mombasa and Nairobi, implement partial lockdown within the Nairobi metropolitan area among other restrictive measures that were aimed at curbing the spread of the virus,” said Cytonn in the report.

“Some serviced apartments have also been issuing discounts to attract and maintain clients amid a tough economic environment occasioned by reduced disposable incomes.” 

Westlands-Parklands was the best performing node, recording an average rental yield of 6.1 per cent, 2.1 per cent points higher than the market average of four per cent.

This was attributed to the proximity to business nodes such as Kilimani, the Central Business District and Upper Hill, availability of amenities such as the Westgate Mall and Sarit Centre and ease of accessibility and proximity to the Jomo Kenyatta International Airport (JKIA) and Wilson Airport. 

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Kilimani was the second-best performing node with average rental yields of 4.8 per cent.

“This is, however, a decline of 4.7 per cent attributed to 31.6 per cent decline in occupancy rates and 20.5 per cent correction in the monthly charges per square metre,” said the report.

In what may stir concerns among investors, Thika Road gave mean yields in the year.

“Thika Road (Muthaiga North, Mirema and Garden Estate) recorded the lowest rental yield at 2.0 per cent, and this was attributed to the relatively low charge rates for apartments within the area,” added the report.

Serviced apartments in the Nairobi metropolitan area increased by a six-year compound annual growth rate of 8.6 per cent to 5,594 in 2020, from 3,414 in 2015.

The current developments in the pipeline are expected to add to the supply in the market segment, fuelling competition, especially in areas like Kilimani and Westlands, which have a majority of serviced apartments within the area.

And as the international skies continued to open, the total number of international arrivals through JKIA and Moi International Airport increased from 13,919 people in August to 20,164 in September.

“This is an indication of the gradual recovery of the tourism industry, which will boost the hospitality sector. The second wave of the pandemic in some markets is, however, expected to slow down these numbers as people limit their travelling options to avoid the spread of the virus,” said Cytonn.

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