“Kisumu Real Estate Sector Performance Remains Relatively Flat Between May 2016 – May 2018, With 16.1% Total Returns”Says Cytonn

 Cytonn has today released their Kisumu City Research Report, which highlights that the performance in the Kisumu real estate sector remained relatively flat between May 2016 – May 2018, with total returns coming in at 16.1%, from 15.5% in May 2016. The overall rental yields came in at 7.2%, 0.2% points higher than the 7.0% recorded in May 2016. For the specific themes, commercial office and residential yields remained unchanged from May 2016, averaging at 7.0% and 5.1%, respectively, while in the retail sector, the yields increased by 0.4% points from 9.0% in May 2016 to 9.4% in May 2018. Price appreciation in the market declined by 3.3% points from 5.1% in May 2016 to 1.8% in May 2018, while capital appreciation registered 0.4% points increase from 8.5% in May 2016 to 8.9% in May 2018.

“We remain neutral about the performance of the Kisumu real estate sector. However, the market has pockets of value in sectors such as Grade A and B commercial offices driven by devolution and growth in SMEs while the land sector is driven by demand from developers as they expand from the CBD to relatively new suburbs such as Riat Hills,” said Johnson Denge, Cytonn’s Senior Manager, Regional Markets, when speaking about the overall opportunity in real estate in Kisumu City. The performance in Kisumu is mainly bolstered by (i) Positive Economic Growth, with a GDP per Capita of USD 625 against a Kenyan average of USD 634, (ii) Devolution, that has opened up Kisumu City, attracting government institutions, private investors, and entrepreneurs to the county headquarters, (iii) Positive Demographics as population has been growing at a rate of 2.8% p. a, compared to the Kenya average of 2.6% p.a., and (iv) Infrastructural Development in the recent years, such as upgrading of the airport to international status, slum-upgrading programs by National Youth Service (NYS), and development of roads.

Speaking on the performance of various real estate themes, Juster Kendi, Research Analyst at Cytonn, noted that, “For the commercial sector, the pockets of value in the sector are mainly in Grade A & B offices, recording higher rental charges at Kshs 80 compared to Grade C at Kshs 78 and have an average occupancy rate of 80.0% in the first year of operation. The opportunity in the residential sector, is mainly in apartments for rent in suburbs such as Milimani, Lolwe, Migosi and Mamboleo, which record an average rental yield of 5.5%.”

Out of the four real estate themes under evaluation in Kisumu, 2 themes, that is commercial offices and land have a positive outlook, retail sector has a neutral outlook, while residential has a negative outlook, thus we retain a neutral outlook for the Kisumu real estate market. The market, however, has pockets of value in various sectors as shown below;

APPENDIX: DETAILED TABLES FOR EACH MARKET SEGMENT

SECTION II: PERFORMANCE BY SECTOR

RESIDENTIAL SECTOR PERFORMANCE – In the residential market, the performance softened, with the sector recording a decline of 3.2% points in total returns from 10.1% in May 2016 to 6.9% in May 2018, attributable to political uncertainties in the area during the 2017 election. Apartments in Kisumu register higher total returns as compared to detached houses at 8.5%, and 3.8%, respectively. This can be attributed to slow uptake of detached units, as detached units are located in areas out of town such as Riat Hills where there is poor infrastructure, hence most developments are decreasing the prices to increase affordability and attract investors.

COMMERCIAL OFFICE SECTOR PERFORMANCE – The performance of commercial offices in Kisumu has picked up, with average rental yields for Grade C offices in the sector increasing by 0.3% points p.a., from 7.0% in May 2016 to 7.6% in May 2018. The occupancy rates were also in an upward trend, increasing by 1.5% points from 90.6% in May 2016 to 93.3% in May 2018. The better performance is as a result of an increase in demand for office space in the city, driven by devolution and growth in SMEs.

RETAIL SECTOR PERFORMANCE – The retail sector in Kisumu recorded 0.2% points annualized increase in rental yields from 9.0% in May 2016 to 9.4% in May 2018, attributable to 1.7% points increase in occupancy rates from 75.8% in May 2016 to 78.3% in May 2018. This was driven by the area’s high urbanisation rate averaging at 5.5% p.a. compared to Kenya’s average urbanisation rate of 4.4% attributable to devolution, which is the pull factor for growth in population in the area, and a key driver for the retail sector. “We remain neutral over the sector given the increased supply of malls translating to 149 SQM per 1,000 urban persons compared to other counties such Nairobi with 145 SQM per 1,000 urban persons and Kiambu at 45 SQM per 1,000 persons,” added Ms. Kendi

LAND PERFORMANCE – The land sector recorded an annualized capital appreciation of 8.9%, attributed to speculations and increased demand for land in residential zones such as Riat Hills as the residents shift to the outskirts of Kisumu City due to congestion in estates around Kisumu CBD. According to Cytonn report the opportunity in the sector is in emerging residential zones such as Riat Hills driven by speculation and the market exodus from congested Kisumu city CBD.



Cytonn Investments is an independent investment management firm, with offices in Nairobi – Kenya and D.C. Metro – U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs. 82 billion of investments and projects under mandate, mainly in real estate.

Cytonn Real Estate is Cytonn’s development affiliate, which is focused on developing institutional grade real estate targeted at specific institutional, high net-worth and Diaspora investors. Collectively, Cytonn Investments and Cytonn Real Estate manage over Kshs. 82 billion of real estate projects.

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