In the commercial office segment, the analysts predict a likelihood of lower returns as a result of oversupply in the sector.
A real estate firm has said inadequate and the high cost of funds, increased supply and competition, as well as a lack of affordable development-class land, will affect the sector this year.
Cytonn Investments in an annual market report for 2018 released on Monday in Nairobi shows that mortgages have already reduced due to the interest-rate capping, with the number of active accounts dropping by 1.5 per cent to 24, 085 at the end of December.
And despite the capping of interest rates the actual cost of credit is still high averaging 19 per cent, thus increasing the development costs.
In the commercial office segment, the analysts predict a likelihood of lower returns as a result of oversupply in the sector.
“Supply is expected to be 3.9 million square feet in 2018. With the entry of international retailers, we expect high competition in the retail sector which is likely to constrain the performance of small operators,” Cytonn said.
There is also inadequate development land supply at fair prices that increase the costs of development and consequently end-user prices.
On average, land prices have grown by a six-year compound annual growth rate of 17.4 per cent.
The report said to overcome some of these challenges investors will have to look for alternative fundraising channels which include project notes and Real Estate Investment Trusts.
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