Johnson Denge

Oversupply slashes rental yields

The real estate sector last year recorded a small decline on the back of a slowdown in demand for property amid growing supply, a report has said.

According to Cytonn’s latest real estate review, while the sector recorded expansion across all segments, it recorded a total return of 11.2 per cent last year compared to returns of 14.1 per cent in 2017. This was largely attributed to a tough operating environment during the period.

“The slump in the 2018 real estate returns is attributable to a slowdown in demand for property amid the growing supply,” commented Cytonn’s regional markets senior manager, Johnson Denge, after the report’s release on Wednesday.

He said this was evidenced by a three per cent decline in the residential sector occupancy rates and a 0.4 per cent decline in occupancy rates in the retail space.

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Among other key challenges faced by the sector last year were uncertainty surrounding building approvals particularly in the wake of demolitions, lack of financing as loans remained out of the reach of most aspiring home buyers as well as an oversupply in some of the segments such as the retail sector.

The sector recorded an oversupply of two million square feet of space, according to the report.

As a result, the sector recorded rental yields of nine per cent in retail, 8.1 per cent in commercial office, eight per cent in mixed-use developments, 7.4 per cent in serviced apartments and 4.7 per cent in the residential sector, resulting in an average rental yield of 7.4 per cent last year.

This is compared with 7.6 per cent in 2017. However, according to the firm, the sector is expected to pick up this year supported by the Government’s focus on affordable housing as well as the continued positioning of Nairobi as a regional hub.

According to the report, occupancy rates for residential and commercial spaces in Nakuru went down despite an upsurge in property development in and around the lakeside town.

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