Mombasa real estate investment opportunity

This is an update on research conducted in 2016 whose analysis showed the market had an average rental yield of 7.0% with the residential sector recording average total returns of 7.9% p.a. (an average capital appreciation of 1.6% per annum and rental yield at 6.3%), whereas the office and retail sectors recorded average rental yields of 5.9% and 8.9%, respectively. We update those findings in light of the recent developments within the county where this year, the real estate market recorded average rental yields of 6.2%, with the residential sector recording average total returns to investors of 7.2% (rental yields of 5.1% and capital appreciation of 2.1%), whereas the retail and office sectors attained yields of 8.3% and 5.1%, respectively.


Mombasa, the 2ndlargest city in Kenya after the capital city of Nairobi, is situated on the South- Eastern side of Kenya and is the smallest county in Kenya, measuring 229.9 SQKM. It is bordered by Kwale County to the West, Kilifi County to the East, and the Indian Ocean to the South. The county consists of 6 constituencies: Jomvu, Changamwe, Likoni, Nyali, Kisauni, and Mvita, but is broadly divided into Mombasa Island and the Mainland by the Indian Ocean. It has a relatively high population growth. Economically, the county is poised as one of the regional leaders in terms of maritime trade within the continent where Mombasa Port is the largest seaport in East and Central Africa. Moreover, Mombasa is one of the leading tourist destinations in East Africa due to its location adjacent to the Indian Ocean.

Factors driving real estate

The real estate sector in Mombasa has been on an upward growth trajectory in terms of supply, attracting both local and international investors in the residential, commercial office, retail and hotel sectors.  The key factors that have contributed to the growth include:

^ Positive Demographic Dividend: The county has a relatively high population growth with the County Government of Mombasa estimating the 2017 population to be at 1.3m persons, an 8-year CAGR of 3.9% from the 0.9 mn recorded in 2009. Thus, the county currently has a relatively high population density of approximately 5,532 persons per SQKM in comparison to the national population density of 83 persons per SQKM. The county also reaps from the prevalent mixture of international cultures that have boosted its middle class population portfolio.

^ Housing Deficit: The rapid population growth coupled with a continuous inflow of tourists as well as rural to urban migration in search of employment has largely contributed to demand for dwellings with the Ministry of Land, Housing, and Physical Planning estimating the housing deficit to be at 380,000 as of 2018. The rapid demographic growth has also boosted the demand for other facilities such as land and retail properties to serve the needs of the residents.

^ Infrastructural Improvements: Mombasa has seen several infrastructural projects in the last few years, which has improved the ease of doing business and thus attracted investment. For example, the start of operation of the Standard Gauge Railway in June last year resulted in an increase in local tourism thus, pushing up demand for accommodation services. According to KNBS Economic Survey 2018, bed-occupancy by local tourists increased by 15.6% to 3.6 mn in 2017 from 3.1 mn in 2015. Plans are also underway to upgrade the Moi International Airport’s capacity and efficiency at a cost of Sh7b, alongside the Likoni Channel through construction of the Sh82b Mombasa Gate Bridge Project. Such developments, while also supported by the ongoing Mombasa West Integrated Urban Roads Network Project, which consists of projects such as the Port Reitz Road and the Dongo Kundu Bypass, are bound to open up new areas for investment in Mombasa County, thereby pushing property prices up, as they boost accessibility and reduce traffic snarl-ups, thus setting up the region to attract more investments, including real estate.

^ Tourism Sector: Mombasa is recognized as one of the major tourist attraction areas in Kenya, partly due to its rich cultural heritage and also its proximity to the Indian Ocean. The tourist activities have resulted in a vibrant economy boosting the retail sector and the hotel industry, as well as the demand for luxury residential homes especially by long-stay visitors, and,

^ Strong Economic Growth: According to a 2015 World Bank study, Mombasa ranked the 9th in Kenya in terms of GDP Per Capita among all counties, recording an average GDP Per Capita of $935, 34.7% higher than the national average of $694. This is expected to grow further given the rebound in tourism sector and the infrastructural developments that are aimed at enhancing trade in the county’s sea and airports.


Mombasa County has had its fair share of challenges that have hampered the full maturity of its real estate sector, key among them being:

^ Insecurity: The county has been prone to terrorist-related threats, stemming from the 2015 attacks by international terrorist groups such as Al Shabaab, which led to the number of international arrivals declining by a 6-year CAGR of 10.0% to 1.2m in 2015 from 1.8m in 2011. This has resulted in potential investors holding off investment in the county – despite the rebound in the number of arrivals in 2016 and H1’2017, which should be an indicator of return to calm – and this has generally had a negative impact on the business environment. As a result, the performance of the office sector, for example, has been poor with the average occupancy as at August 2018 coming in at an average of 65.8%, compared to counties such as Nairobi with 84.6%,

^ Insufficient infrastructure: Despite the new infrastructural developments, Mombasa County still struggles with inadequate infrastructure, which inhibits the growth of the business environment. For instance, the narrow Nyali Bridge and roads have rendered the city center and its environs unattractive for commercial real estate due to the perennial traffic snarl-ups, whereas the insufficient capacity of the Likoni Ferries affects Mombasa South’s tourism industry due to the long delays caused at the crossing channel. In addition, insufficient access to water services and sewerage systems in majority of the residential estates impedes real estate investments in certain areas such as Likoni and Tudor,

^ Inadequate supply of affordable development land: The County lacks sufficient development land to cater for the huge demand, with a population density of 5,532 persons per SQKM, in comparison to the national 83 persons per SQKM. This has resulted in the proliferation of squatter settlements in areas such as Bamburi, Kisauni, Likoni, and Jomvu. Average land prices in areas such as Nyali, Kizingo, Port Reitz, and Shanzu, have grown by a 2-year CAGR of 12.6% to an average of Sh115.4m as at 2018, from an average of Sh109.4m in 2016 making it more difficult to provide affordable housing for the low-income population,

^ Outdated spatial planning: Mombasa lacks an updated and proper spatial plan to meet the needs of the fast-growing population with the last planning policy having been drawn in 1971, and having expired in the year 2000. This has resulted in unplanned development, transport challenges, especially within Mombasa town, with constant traffic jams, drainage issues resulting in flooding in areas such as Mzizima and Kaloleni, poor waste management practices and consequently poor living conditions especially for low income households. This has led to decline in development land available at the city centre, improper land use practices and proliferation of informal settlements, rendering such areas unattractive for investment grade commercial developments.

Market performance

We conducted research in August 2018 covering the residential, commercial office, retail and land sectors.

Residential Sector

The residential sector in Mombasa recorded a marginal decline in average total returns to investors to 7.2% from 7.9% recorded in 2016. This is majorly attributable to a decline in average rental yields which came in at 5.1% in 2018, 0.6% annualized drop since 2016 when the market had an average rental yield of 6.3%. This is attributable to increased vacancies as more developments are delivered to the market, which are out of reach for majority of the Mombasa residents, majority of whom are low income earners, that is, below Sh50, 000 per month (JICA 2016). Notably, capital appreciation recorded a marginal improvement of 0.3% annualized growth to a market average of 2.1% this year, from the 1.6% recorded in 2016. The best performing segment was the upper mid-end sector, which recorded the highest returns to investors of 7.9% on average, that is, average rental yields of 5.6% and a capital appreciation of 2.3%. This is on account of investors in the region purchasing apartments in order to rent them to the growing middle class as well as long-stay international visitors in the county.

^ Lower Mid-End

The lower mid-end sector mainly comprises of developments in areas such as Tudor, Bamburi, and select parts of Nyali. The segment recorded relatively high occupancy rates with an average of 89.2%, indicating demand from the region’s lower-middle working population. Average total returns came in at 6.7%, with 2-bedroom units offering relatively higher returns of 7.4%, attributable to demand from young families and investors seeking to convert them to short and mid-term stay facilities, as they are relatively affordable

^ Upper Mid-End

The upper mid-end segment mainly comprises of developments in Nyali, Kizingo, and Shanzu. The segment registered the highest performance with average total returns of 7.9%, in comparison to the overall market’s average of 7.1%, attributable to a relatively high capital appreciation, which came in at 2.3% compared to the overall market’s average of 1.8%. This is attributable to demand for quality housing from the middle class in the region especially in areas such as Nyali and Kizingo; 3-bedroom apartments recorded the highest average annual uptake of 23.8%, indicating demand from investors.

^ Upper Mid-End

The high-end market comprises of developments in Nyali and Kizingo. The segment recorded the lowest returns to investors with average total returns of 4.1%, attributable to low rental yields at 2.7% as a result of relatively low occupancy rates of 62.2%, compared to lower-middle and upper-middle segments, which recorded average occupancies of 89.2% and 82.6%, respectively. This indicates that the high-end units may be out of the affordability range for majority of the Mombasa population with an average absolute price of Sh56.1m, and thus they only attract the few wealthy individuals. Generally, 4-bedroom units performed better with average total returns of 4.4%, with occupancy rates being highest in Kizingo, which recorded an average of 92.9%. This is attributable to demand from wealthy investors seeking spacious beach homes

Residential performance summary

Overall, the residential sector recorded a downward growth in returns with average total returns to investors declining by 0.7% points to an average of 7.2% in 2018 from 7.9% recorded in 2016. In terms of performance, the 4-bedroom typology recorded the highest returns to investors with an average of 8.0% and the highest price appreciation of 2.4%, indicated by the relatively high annual uptake rates of 21.3% in comparison to the market average of 18.3%. This is attributable to the low supply of 4-bedroom units, against high demand especially from upper middle income and high-income individuals. However, 2-bedroom units recorded the biggest gain with capital appreciation improving by 6.5% points to 2.4% in 2018, from a depreciation of 4.1% in 2016.


Office Sector

The office sector in Mombasa recorded a relatively low performance with verage rental yields of 5.1% in 2018, a 0.5% points decline from 5.6% recorded in 2016. This is attributable to a decline in rental rates which came in at Sh75.7 per SQFT in 2018, a compounded annual drop of 12.6% from the Sh99.0 per SQFT recorded in 2016. This is as demand increased at a slow rate by a 2-year CAGR of 0.6% – an indicator of minimal business expansion in the region, which could be attributed to insufficient infrastructure in key areas such as Mombasa Island, which has made it hard to conduct business in the region. In addition, growth in the financial services sector has been hampered due to (i) lack of legal and regulatory structures, (ii) insufficient skilled professionals in Islamic finance considering that 41.0% of Mombasa’s population is Muslim, and (iii) poor perception and lack of awareness of sharia compliant financial products.

However, the sector has a potential for growth in the future, due to the ongoing developments in the region such as infrastructural improvements, the devolved government’s emphasis on investment in sectors such as manufacturing and the maritime business, and the national economic growth which has a spill-over effect as companies expand to the nation’s largest cities such as Mombasa. This is bound to improve demand for office space.

The average selling price for office space remained flat at Sh12,833 per SQFT mainly driven by the notably low uptake of 20.0% on average, as well as sluggish occupancy rates,  which increased by a 2-year CAGR of 0.9% between 2016 and 2018.


The retail sector in Mombasa recorded an improvement in performance from 2016 to 2018, in terms of occupancy rates, which increased by 7.2% points on average, annually from 82.0% to 96.3%. The demand has been spurred by a positive demographic dividend, a growing middle class, the rebound in the tourism sector, and local retailers such as Tuskys and Naivas that are keen on expanding their national footprint. Nakumatt, which was predominantly the main retailer in a majority of the malls in Mombasa has paved the way for entry of other local retail giants such as Naivas as well as international retailers such as Shoprite, through its exit from the market. Moreover, several international retailers have announced plans to expand to Mombasa including LC Waikiki, Domino’s Pizza, Coldstone, and Shoprite. Mombasa has the second largest mall space supply in Kenya with 1.4mn SQFT, after Nairobi, which has 6.5 mn SQFT. New malls in the region include the Mwembe Mall in Mwembe Tayari measuring 135,600 SQFT, which was complete in 2018, and Airport Mall in Changamwe measuring 172,000 SQFT, which is under construction and expected to be operational within 2018.

In comparison with 2016, the average asking rents for the retail sector declined by 5.5% annually between 2016 and 2018, as investors sought to attract clientele especially with the exit of various banks from the malls, and Nakumatt, which was an anchor tenant in key malls such as City Mall, Nyali Plaza and Likoni Complex. Occupancy rates increased by a cumulative of 14.3% between the 2-years from 82.0% as at 2016 to 96.3% in 2018, driven by affordable rental rates, as well as the continued expansion of local retailers such Naivas.

Land Performance

The average price per acre in Mombasa is Sh115.4m, an average price appreciation of 12.6% from Sh109.4m per acre in 2016. Fast developing areas such as Kizingo and Nyali, recorded the highest price per acre at Sh244.6m and Sh134.0m, respectively. Areas such as Likoni Harbor and Port Reitz also exhibit high demand for land hence high prices. Ongoing infrastructural improvements such as the Mombasa West Integrated Urban Roads Network Project, the planned Mombasa Gate Bridge, and the recently launched SGR, have also contributed in boosting land prices as they open up areas for investment. Additionally, the ability to densify in areas such as Kizingo, Tudor and Nyali has led to high land prices as developers are able to maximize their investment.

Performance Summary

In summary, the real estate sector in Mombasa registered average rental yields and price appreciation of 6.2% and 7.2%, respectively, with the retail sector recording the highest rental yields of 8.3% compared to other themes such residential and office, which attained yields of 5.3% and 5.1%, respectively.

Regional Comparative Analysis

Comparing across the 5 counties of Nairobi, Mombasa, Nakuru, Kisumu and Nyeri, we have tracked thus far;

^ In the residential sector, Mombasa recorded average rental yields of 5.1%, higher than Nakuru’s 4.2%, Nyeri’s 4.1%, and lower than Nairobi’s 5.4% and Kisumu’s 5.2%

^ In the office sector, Mombasa recorded the least yields of 5.1%, compared to Nakuru, Kisumu, Nyeri and Nairobi with 7.2%, 8.4%, 13.0% and 9.3%, respectively

^ In the retail sector, Mombasa recorded average rental yields of 8.3%, which is higher than Nakuru’s 5.8%, albeit lower than Nairobi’s 9.6%, and Kisumu with 9.9%

Below is a graph showing the summary;  

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