Westlands delivered the highest rental yields for Mixed Use Developments (MUDs) in the Nairobi Metropolitan Area in 2020, according to a new survey by Cytonn.
MUDs are real estate developments designed to incorporate more than one real estate theme; such as office, residential, retail and hospitality.
The Nairobi Metropolitan Mixed-Use Developments Report 2020 indicates that MUDs recorded average rental yields of 7.1 per cent, 0.3 per cent higher than single use retail, commercial office and residential themes which averaged yields of 6.8% in 2020.
Overall, a 0.2% drop was recorded compared to average rental yields from MUDs in 2019, when the figure stood at 7.3 per cent. The decline was attributed to the effects of the Covid-19 pandemic and depressed economy.
Retail, office and residential spaces in MUDs recorded rental yields of 7.8%, 7.3% and 6.2%, respectively, compared to the single-use average of 7.5%, 7.2%, and 5.6%, respectively.
“The relatively better performance by MUDs is attributed to the prime locations, mostly serving the high and growing middle class supported by the concept’s convenience as it incorporates working, shopping and living spaces,” Cytonn noted.
In a pointer to the shocks of the pandemic, retail and commercial themes in MUDs each recorded 0.6% decline in rental yield.
The decline was also attributed to an oversupply of 3.1 million SQFT and 6.3 million SQFT of retail and commercial space, respectively. There was reduced demand for physical retail and office spaces.
Notably, however, retail and office themes within MUDs performed better than the single-use themes which posted average rental yields of 7.5% and 7.2% respectively.
The difference was attributed to the amenities offered by MUDs and high-quality finishes which drove higher rental rates hence higher returns.
Residential units in MUDs recorded 0.8% increase in rental yield from 5.4% in 2019 to 6.2% in 2020. There was greater demand for rented residential units as opposed to units for sale within MUDs.
Westlands delivered the highest average rental yields for MUDs at 8.5% with the retail, office and residential spaces recording rental yields of 9.8%, 8.2% and 7.0%, respectively, 2.0%, 0.9% and 0.8% higher than the sector averages of 7.8%, 7.3% and 6.2%.
Limuru Road and Karen were tied at second position with an average MUD rental yield of 7.3% each.
“(Limuru Road and Karen MUD rental yields) largely driven by their attractiveness as retail destinations with malls such as Two Rivers and Galleria offering high quality retail spaces in addition to hosting high income earners with relatively high purchasing power especially in the case of Karen,” Cytonn noted.
Thika Road and Eastlands were the worst performing areas recording yields of 6.4% and 5.5%, respectively attributed to low rental charges as a result of competition from informal Mixed-Use Developments.