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27 November, 2023
Press Release

FOR IMMEDIATE RELEASE

‘’WESTLANDS, LIMURU ROAD, AND KILIMANI WERE THE BEST PERFORMING NODES FOR SERVICED APARTMENTS IN THE NAIROBI METROPOLITAN AREA (NMA), RECORDING AVERAGE RENTAL YIELDS OF 10.2%, 8.2% AND 7.7% RESPECTIVELY, 3.4%, 1.4% AND 0.9% POINTS HIGHER THAN THE MARKET AVERAGE OF 6.8%’’

Nairobi, Kenya. Monday November 27th 2023

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Area (NMA) Serviced Apartments Report 2023. The report analyses the performance of Serviced Apartments within the Nairobi Metropolitan Area through tracking the changes in occupancies, rental yields and rental rates. It also outlines the outlook and investment opportunity for NMA Serviced Apartments.

According to the report, NMA serviced apartments recorded an average rental yield of 6.8% in 2023 which was a 0.6% points increase from the 6.2% realized in 2022. The improvement in performance was primarily on the back of; i) growing popularity of Nairobi as a business destination, having being voted as Africa’s leading business travel destination in the 2023 World Travel Awards, ii) continued recovery of the Kenyan hospitality sector, iii) increased number of international tourist arrivals into the country as compared to a similar period in 2022, iv) the intensive marketing of Kenya’s tourism market through platforms such as the Magical Kenya platform among others, and, v) the sustained preference by various guests for extended stay options within the city. The table below shows the comparative analysis between 2022 and 2023;

All values in Kshs unless stated otherwise

Cytonn Report: Comparative Analysis-2022/2023 Market Performance

Node

Monthly Charge/SQM 2022

Occupancy 2022

Rental Yield 2022

Monthly Charge/SQM 2023

Occupancy 2023

Rental Yield 2023

Change in Monthly Charges/SQM

Change in Occupancy

Change in Rental Yield

Westlands

3,916

70.7%

9.3%

4,059

74.2%

10.2%

3.7%

3.5%

0.9%

Limuru Road

2,976

60.6%

5.8%

4,699

58.1%

8.2%

57.9%

(2.5%)

2.4%

Kilimani

2,937

69.3%

7.2%

3,229

66.5%

7.7%

9.9%

(2.8%)

0.5%

Kileleshwa & Lavington

2,811

66.3%

6.6%

2,844

71.5%

7.2%

1.2%

5.2%

0.6%

Upperhill

2,225

65.4%

5.0%

2,309

65.8%

5.2%

3.8%

0.4%

0.2%

Nairobi CBD

2,348

66.2%

5.2%

2,539

57.5%

4.9%

8.1%

(8.7%)

(0.3%)

Thika Road

1,800

62.1%

4.2%

1,632

70.6%

4.1%

(9.3%)

8.5%

(0.1%)

Average

2,716

65.8%

6.2%

3,045

66.3%

6.8%

10.8%

0.5%

0.6%

Source: Cytonn Research

In terms of submarket performance, Westlands and Limuru Road emerged the best performing nodes, with rental yields of 10.2% and 8.2% respectively, compared to the market average of 6.8%. The performance was attributed to, i) the proximity  of the nodes to international organizations and embassies concentrated within their bounds which has continued to drive the demand for serviced apartments in the nodes upward, owing to a high influx of foreign nationals and expatriates, ii) presence of high quality serviced apartments available in the nodes which attract premium rates, iii) the ease of accessing the areas through well-developed infrastructure road networks, and, iv) their relative closeness to the Nairobi CBD and other upscale neighborhoods. On the other hand, Thika Road was the least performing node, with an average rental yield of 4.1%, 2.7% points lower than the market average of 6.8%. The performance is attributed to, i) the relatively low charge rates for apartments in the node, ii) the low demand for its serviced apartments caused by their unpopularity, iii) the long commute to main commercial zones, and, iv) reduced monthly charges in the area compared to last year, as landlords continued to offer discounts in efforts meant to attract customers and improve occupancy rates. The table below highlights the performance of the various nodes within the NMA;

Cytonn Report: NMA Serviced Apartments Performance per Node - 2023

Node

Studio

1 Bed

2 Bed

3 bed

Monthly Charge/

Occupancy

Devt Cost/SQM (Kshs)

Rental Yield

SQM (Kshs)

Westlands

193,633

271,362

340,190

359,563

4,059

74.2%

209,902

10.2%

Limuru Road

6,271

236,265

329,655

271,105

4,699

58.1%

231,715

8.2%

Kilimani

187,980

258,288

309,200

468,883

3,229

66.5%

202,662

7.7%

Kileleshwa & Lavington

120,000

284,231

230,204

400,495

2,844

71.5%

206,132

7.2%

Upperhill

187,000

335,951

360,400

2,309

65.8%

209,902

5.2%

Nairobi CBD

120,000

167,140

254,875

300,000

2,539

57.5%

224,571

4.9%

Thika Road

92,975

1,444

1,312

1,632

70.6%

200,757

4.1%

Average

125,577

213,894

257,360

308,823

3,045

66.3%

212,234

6.8%

Source: Cytonn Research

Investment opportunity lies in Westlands, Limuru Road, Kilimani, and Kileleshwa-Lavington which recorded average rental yields of 10.2%, 8.2%, 7.7% and 7.2%, respectively, against the market average of 6.8%. The table below summarizes the key performance metrics of the general performance and outlook of the serviced apartments sector and investment opportunities that exist in the sector;

Key: Grey – NEUTRAL highlights sectorial outlook

Cytonn Report: Serviced Apartments Sector Outlook 2023

Measure

Sentiment

Outlook

Serviced Apartments Performance

  • Serviced apartments within the NMA recorded an average rental yield of 6.8% in 2023, 0.6% points increase from 6.2% recorded in 2022. Average occupancy rates also increased coming in at 66.3%, representing a 0.5%-points increase from the 65.8% recorded in 2021. Monthly charges for 2023 increased by 10.9% to Kshs 3,045 per SQM from Kshs 2,716 per SQM recorded the previous year
  • Our outlook for the sector is neutral, as we expect that performance will be supported by increased tourist arrivals into the country and the continued positive performance of the overall Kenyan hospitality industry. Additionally, Nairobi’s growing popularity as a leading business travel destination, alongside the above factors will propel the sector’s performance on an upward trajectory
  • However, we anticipate that the current tough micro-economic environment characterized by rising inflation will weigh down optimum performance of the sector by increasing operational costs and curtailing consumer’s expenditure

Neutral

International Tourism

  • On a year-on-year (y/y) basis, international arrivals increased by 31.0% increase to 971,326 persons from January to August 2023, compared to 741,254 persons recorded during a similar period in 2022. The improved performance is attributable to; i) increased international marketing of Kenya’s tourism market by the Ministry of Tourism in collaboration with the Kenya Tourism Board, through platforms such as the Magical Kenya platform, ii) the tourism board alignment of its marketing initiatives towards targeting emerging and established source markets, iii) concerted efforts to promote local and regional tourism, iv) development of niche products such as cruise tourism, adventure tourism, culture and sports tourism and, iv) an increase in corporate and business Meetings, Events, and Conferences (MICE) from both the public and private sector
  • Despite the sector’s resilience exhibited in its overall performance in 2023, our outlook remains neutral, but leaning more towards the positive. Kenya faces stiff competition from other regional markets especially countries such as Rwanda with aggressive marketing campaigns such as ‘Visit Rwanda’, Zanzibar, Tanzania and South Africa

Neutral

MICE Tourism

  • Kenya emerged as Africa’s best MICE destination, as a result of Nairobi winning Africa's Best MICE Destination 2022 award in the 3rd annual World MICE Awards, positioning Kenya as a popular MICE destination. This was on the back of outstanding conferencing centers such as Kenyatta International Convention Centre (KICC), world class accommodation centers such as the Hilton Hotel in Nairobi, top rated airlines such as Kenya Airways (KQ), and a stable business environment. Several other Kenyan hotels and brands such as Zuri events and Leopard Beach Resort and Spa were awarded in the Kenyan category
  • We expect Kenya will maintain its positive performance in the upcoming 4th Annual MICE Awards 2023 which will be held in Doha, Qatar on 25th February 2024
  • However, the popularity of teleconferencing and online meeting tools like Google Meet and Zoom Meetings is expected to continue weighing down the optimum need for physical space in conducting meetings

Neutral

Supply

  • The number of serviced apartments within the Nairobi Metropolitan Area (NMA) increased by an 8-Year CAGR of 8.6% to 6,627 apartments in 2023, from 3,414 apartments in 2015, with key facilities brought into the market being 100-room Dusit Princess Residences located in Westlands, and Somerset Rosslyn Nairobi by Ascott Limited, a 150-unit development in Runda. Furthermore, gross loans advanced to the Real Estate sector increased by 6.2% to Kshs 495.0 bn in Q2’2023, from Kshs 466.0 bn in Q2’2022, according to the Central Bank of Kenya which we expect will support further development in the sector.
  • For projects in the pipeline, the number of developments in the pipeline reduced compared to 2022. The upcoming developments however, are poised to augment the existing supply and foster heightened competition. This will ultimately translate into an expanded array of options for customers to choose from. Based on the above, we maintain a neutral outlook for the sector, with noteworthy positive elements on the back of a reduction in developments in the pipeline, compared to the previous year.

Neutral

Source: Cytonn Research

Notes to the Editor:

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 82.0 billion of investments and projects under mandate, primarily 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. Collective, Cytonn Investments and Cytonn Real Estate manage over Kshs. 82.0 billion of real estate projects.

For more information, kindly contact:

Brian Ireri

Brand and Communications Coordinator

+254797385525

bireri@thesharpdaily.com

Cytonn Investments Management Plc, Cytonn Square, Kilimani, Argwings Kodhek Rd, Nairobi, Kenya, P.O. Box 20695 – 00200, Nairobi, Kenya. info@cytonn.com || investment@cytonn.com | +254 (0)20 3929 000

 
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