Mombasa offers best retail occupancy, yields

Mombasa maintains a strong performance in retail occupancy and yields compared to other principal towns such as Nairobi, Kisumu, Nakuru, and Nyeri which are registering an overall struggle to fill retail space, a new real estate report showed.

For developers, Mombasa county offers the best investment returns with average rental yields of 9.7 per cent for neighborhood malls compared to a market average of 9 per cent and also registered the highest occupancy rates of 98.4 per cent compared to a market average of 87.4 per cent, a weekly report by Cytonn showed.

Mombasa is an attractive prospect for retailers due to minimal supply of mall space compared to other key counties, meaning less competition from rivals. The purchasing power in Mombasa is also relatively high going by World Bank data which showed the county had the fifth highest GDP per capita in Kenya as at 2015 of $935.0 (Sh93,500) compared to a national average of $1,455.0 (Sh145,500). Further, Mombasa benefits from a 100 per cent urbanised population, which boosts demand for formal shopping outlets.

“We thus expect to witness more developers and retailers, expand to Mombasa, from Nairobi, which is sufficiently supplied, with an estimated total mall space of 5,800 meters square feet as per the report, the highest in sub-Saharan Africa, excluding South Africa,” the Cytonn report states.

In the retail sector, local retail chain, Naivas, announced plans to open its fourth outlet in the coastal city which will start operations from September this year. The outlet which will occupy 27,000 square feet at Mwembe Tayari mall will bring Naivas’ total store count in Kenya to 47, bucking the trend that has characterized the local retail scene where locally owned chains have been experiencing financial constraints and mismanagement issues leading to a closure of stores.

Kenya regional retail performance as at November 2017 shows that in Mombasa neighbourhood malls averaged 98.4 per cent and 9.7 per cent occupancy and yields respectively, compared to Nairobi (80.9) and (9.7), Kisumu (87.5) and (9.7), Mount Kenya (80) and (9.1), and Eldoret (90) and (7). The country’s average stands at 87.4 and 9 occupancy and yields respectively.

In the retail sector, for instance, Kisumu recorded an average rental yields of 9.4 per cent, outperforming Nakuru with 6.1 per cent. However, it’s lower than Mombasa and Nairobi which have average rental yields of 10.0 per cent and 9.7 per cent, respectively, showing the coastal county edging equally competitive peers.

In comparison with other Counties in Kenya, Nyeri has higher rental yields for commercial properties than Mombasa, Kisumu, Nairobi and Nakuru with yields of 13 per cent, 10 per cent and 9.6 per cent and 10.9 per cent, respectively, according to Cytonn report of 2017 released in March.

Commercial office in Nyeri have an average yield rate of 13 per cent at a rent per square metre of Sh71 and exit cost of approximately Sh5,000 per square metre informed by buildings on sale and an average occupancy of 83 per cent.

In Kisumu, quality of its commercial premises have come under scrutiny as majority of its office and rental spaces are of lower grade C. The report states, Kisumu city and environs lacks good commercial buildings with most of the buildings being Grade C, however over the last year, the market welcomed Grade B buildings such as Mega Plaza and University of Nairobi building located along Oginga Odinga road.

In Nairobi alone overall office space supply is projected to have grown by more than 50 per cent over the past five years and is forecast to increase by a further 21 per cent this year, Cytonn reported, as grade A outperformed other classes recording yields of 9.8 per cent as the offices are in prime business districts with superior amenities and are thus able to charge prime rents, which are on average Sh112 per square foot per month, against a market average of Sh99.

In March Cytonn reported that Nairobi, by mid-2017 there was a boom in office construction generated an oversupply of around 3.2 million square feet, leaving some tower blocks nearly empty and pushing developers to seek out new marketing strategies in a now fiercely competitive market.

Its retail sector recorded the highest rental yields with 9.4 per cent. However, the sector has an oversupply of retail space with over 100,000 square metre of retail space serving a population of 1.1 million persons, hence we remain neutral on the sector.

The capital’s commercial office recorded rental yields of 7.0 per cent on average and presents an opportunity in Grade A and B offices, recording higher rental charges at Sh80 compared to Grade C at Sh78 and have an average occupancy rate of 80.0 per cent in the first year of operation.