Oversupply of commercial property hurts returns

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The Kenyan retail property market has been facing an oversupply of malls and general commercial property and this likely to hurt investor’s returns, says Gerhard Zeelie, head of real estate finance, African region at Standard Bank.

“Given the cost, long investment tenors and slowed rate of retail stock utilization, investors should not be looking for stellar returns overnight,” he said in an interview.

While the Kenyan commercial property sector has seen a slight increase of 1.48% in rental yield between 2016 and 2017, this doesn’t spell good news for developers. The Data Fintech’s Real Estate Market Report for December 2017 reports that this slight increase is due to an increase in average sale price, which outperformed the growth of rent.

According to Data Fintech, a big data service provider specialized in data brokerage services, the average listing sale price of property increased by 53.24% between November 2016 and November 2017 from Sh57.83 Million to Sh88.03 Million but this growth did not match the increase in units for sale in the marketplace. Likewise, the average rent price per square ft increased by 42.61% from Sh71, 220 to Sh101, 570 within the same period. However the units in the market place increased by nearly 87%.

This spells trouble for investors in commercial real estate. The growth of units in the marketplace outperforming the average increase in sale and rent price implies that majority of the units coming into the market in the last 12 months were of lower rates than the preceding year.