Cytonn: Limuru Road, Karen give best yields for property investments
1 months ago, 19 Nov 10:29
Mixed-use developments along Limuru Road and in Karen are the best performing in Nairobi, with rental yields of 9.6 per cent and 9.4 per cent respectively, according to a report by research and investment firm Cytonn.
Such developments encompass office, retail and residential themes, and normally give an average rental yield of 8.0 per cent.
According to the latest analysis presented by The Cytonn Weekly, high-end neighbourhoods such as Karen, Runda, Rosslyn, Kitisuru among others, that host Nairobi’s middle and upper class populations, are responsible for the impressive performance of these areas.
The residents have a higher purchasing power and are willing to pay a premium for class and amenities provided, said Patricia Wachira, a senior research analyst at Cytonn Investments.
The Cytonn Weekly also noted that areas characterised by traffic congestion and low-income populations with low purchasing power, such as Mombasa Road and Eastlands, are the worst performing nodes, recording average rental yields of 5.7 and 5.4 per cent respectively.
In mixed-use developments, the research established that retail space outperforms other themes, recording a rental yield of 8.5 per cent. This is followed by office space at 8.2 per cent and residential at 5.6 per cent, translating to a weighted average rental yield of 8.0 per cent, per annum.
Retail space in mixed-use developments recorded an average rental yield of 8.5 per cent with an average occupancy rate of 76.9 per cent. This is 1.1 percentage points and 4.3 percentage points lower than the market average at 9.5 per cent yield and 81.2 per cent occupancy.
“This indicates that retail space performs worse in mixed-use development contexts in comparison to being in isolation. Cytonn attributes this to competition from shopping centres and malls strategically located in residential areas, making them easier to access,” Ms Wachira said.
The Cytonn Weekly also indicated that in destination mixed-use developments, retail space performs better due to state-of-the-art facilities that attract clientele keen on impressive experiences.
The researchers found that the integration of residential theme in large-scale integrated mixed-use developments in the Nairobi Metropolitan Area is growing in popularity, especially in developments such as Two Rivers along Limuru Road, Garden City along Thika Road and Nextgen along Mombasa Road, among others.
Residential units in mixed-use developments record higher prices at Sh168,343.5 per square metre and rental yield of 5.6 per cent, compared to the market average of Sh127,895.3 per square metre and rental yield at 5.0 per cent due the convenience, that mixed-use developments bring.
The research concludes that mixed-use developments have higher returns compared to the market average at 7.5 per cent.
“Mixed-use developments are, therefore, a viable investment mainly for office and residential spaces. They are suitable for developers and investors looking to diversify their real estate portfolio, given that some themes such as office and retail having an oversupply of 4.7mn and 2.0mn square feet space, respectively in Nairobi Metropolitan Area,” Ms Wachira concluded.
She added: “The investment opportunity within the Nairobi Metropolitan Area is, thus, ...
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