Earlier this month, the retail sector witnessed the opening of the Waterfront Mall in Karen to the public, further increasing the numbers of retail spaces in the market. The Sh3.0 billion ($29.391 million) mall located in Karen brings to the market 200,000 SQFT of lettable retail space and 1,000 parking bays, and will have South African retailer Game Stores as the anchor tenant.
This brings the number of malls in that area to four. They include Karen Crossroads, Galeria, The hub and now the new Waterfront.
According to a report on Nairobi's Commercial Office Report 'Constrained Performance as a Result of Oversupply' by Cytonn investments, in 2017, Nairobi had a total supply of 31.8mn square feet (SQFT) of office space, 3.5mn SQFT of office space were delivered with an average occupancy level of 83.2 per cent.
"This resulted in a supply of 6.3mn SQFT against a demand of 1.6mn SQFT and thus an oversupply of 4.7mn SQFT. The oversupply is 62.1 per cent higher than in 2016 at 2.1mn SQFT and 46.9 per cent higher than our projection of 3.2mn SQFT. Assuming current occupancy levels persist, we expect a 12.8 per cent increase in oversupply to 5.3mn SQFT in 2018" the report read in part.
The continued investment in malls in the area is attributed to the above market average performance of Karen's retail sector, which according to Cytonn's Kenya Retail Sector Report 2018, recorded an average rental yield of 10.8 per cent, 1.4 per cent points higher than the market average of 9.4 per cent, with an average occupancy rate of 96.0 per cent compared to the market average at 83.7 per cent.
"We attribute the performance to the prime location of Karen as a retail centre, with an affluent population with relatively high purchasing power, and less competition in the market compared to low end areas, where malls compete with second tier supermarkets and stalls, thus developers are able to charge premium rents of Sh212.8 ($2.08) per SQFT on average, compared to the market average rent of Sh178.9 ($1.75) per SQFT." The report added.
The study also indicates that increased supply is likely to constrain the performance of the retail sector, where there is already an oversupply of 2.0 mn SQFT of retail space.
In 2018, the Nairobi retail sector in general recorded reduced performance, with average rental yields declining by 0.2 per cent points y/y to 9.4 per cent from 9.6 per cent in 2017. Occupancy rates increasing by 3.4 per cent points to 83.7 per cent, from 80.3 per cent in 2017. It is expected that the huge supply will negatively affect the performance of the sector. However this does not mean that investors should change their minds about investing in this sector.
There are numerous opportunities for investment in retail space in other markets such as Mombasa and Mt. Kenya Regions that have an existing retail space demand of 0.3 mn and 0.2 mn SQFT, and attractive yields at 8.3 per cent and 9.9 per cent and occupancy rates at 96.3 per cent and 84.5 per cent, respectively. This according to Cytonn Research, has also been boosted by the shifting to County Headquarters.
The retail real estate sector in Nairobi has relatively high yields of on average 9.4 per cent compared to other real estate themes such as the residential sector with average rental yields of 5.6 per cent and commercial office sector with average rental yields of 9.2 per cent.
In Nairobi, the best performing nodes were Westlands and Kilimani with average rental yields of 12.4 per cent and 11.8 per cent, respectively attributed to the fact that they are high end neighbourhoods hosting most of Nairobi's middle end and high-end population. Karen recorded a relatively high average occupancy rate at 96.0 per cent, compared to the market average of 83.7 per cent.
Nairobi is still attractive
Nairobi is still promising especially with the incoming international brands are rushing to take up space in the city and rapidly expanding in the county.Recently, South African retail chain Shoprite opened its first Kenyan store at Westgate Mall, Nairobi, taking up 50,000 SQFT previously occupied by Nakumatt, who exited the mall following financial troubles.
The retailer has plans up their sleeves to open 7 other stores in malls across Kenya, including; the Garden City Mall along Thika Road, the Beacon Mall along Bunyala Roundabout, and the City Mall in Mombasa.
"We continue to see international retailers coming into Kenya and expanding rapidly demonstrating the attractiveness of the sector. Some of the other retailers who have entered the market in the last 3-years include French retailer, Carrefour, Botswana-based retailer, Choppies and South African retailer, Game." the report states.
KFC, an international food chain, opened its latest outlet in Village Market, Nairobi, bringing its total number of outlets in Kenya to 21, with the most recent outlet being in Lavington, Nairobi. The food chain is among other international retailers seeking to increase their foothold in Kenya, some of which include Burger King, Subway, and Dominos, among others.