Counties

Political calm, security pushing up property boom in Mombasa

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A construction site. FILE PHOTO | NMG

Return of political calm, improved security and ongoing infrastructural developments will spur growth in the property sector in Mombasa, a real estate firm has said.

One sector that is performing well thanks to the major infrastructural projects is land.

Cytonn Investments in its Mombasa real estate investment opportunity report notes the county recorded an average rental yield of 6.2 per cent and average land capital appreciation of 12.6 per cent.

“For land, the opportunity lies in site and service schemes in areas earmarked for infrastructural developments such as areas along Mombasa-Mariakani and Port Reitz roads with the land sector generally attaining a capital appreciation of 12.6 per cent on average,” said Wacu Mbugua, a Research Assistant at Cytonn Investments.

According to the firm’s report Nyali, Shanzu, Kizingo and Port Reitz have seen an increase in asking land prices of 0.9 per cent, 24.5 per cent, 8.9 per cent, and 16.5 per cent respectively from an average of Sh109.4 million in 2016 to Sh115.4 million in 2018.

The reports says fast developing areas such as Kizingo and Nyali, recorded the highest price per acre at Sh 244.6 million and Sh 134 million respectively while in areas such as Port Reitz, land has appreciated by an average of 16.5 per cent attributable to ongoing expansion of road networks in the area such as the dualling of the Port Reitz Road.

However, Mombasa has seen a drop in the commercial office sector with a relatively low performance with average rental yields of 5.1 percent in 2018, a 0.5 per cent points decline from 5.6 per cent recorded in 2016.

Decline in rental rates which came in at Sh77.5 per square foot in 2018, a compounded annual drop of 11.5 per cent from the Sh99.0 per square foot recorded in 2016 has led to the drop.

“The commercial sector on the other hand is set to continue on a decline due to reluctance of investors to relocate business to the region, and the local population’s limited ability to occupy investment grade office developments," said Wacu Mbugua, a Research Assistant at Cytonn Investments.

Mixed-use developments recorded better returns with average rental yields of 7.4 per cent compared to the market average of 5.1 per cent, attributable to their relatively high rental rates with an average of Sh108 per square foot compared to the market average of Sh77.5 per square foot, the report says.

Grade C offices

According to the report, Grade C offices recorded the lowest returns with average rental yields of 3.2 per cent due to a low demand for such due to their tendency to lack sufficient amenities, especially parking spaces as majority of them are located within the Central Business District (CBD ) thus limiting land for parking and quality space.

The retail sector in Mombasa recorded an improvement in performance from 2016 to 2018, in terms of occupancy rates which increased by 7.2 per cent points on average, annually from 82.0 per cent to 93.2 per cent.

A number of factors, among them reduced rental rates in the commercial office and retail sectors as developers seek to attract tenants, sluggish growth of the financial services industry, inadequate infrastructure, and fears of insecurity have caused the reluctance of investors to relocate their businesses to Mombasa, thus hampering the office sector’s performance.

The real estate firm further said the residential sector also recorded slow uptake with an annualized uptake rate of 17.5 per cent on average, due to increased supply of products for the upper-middle and high-end markets whose prices are out of reach for majority of the population, which is mostly comprised of low to lower-middle income earners.