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Rent from Nakuru’s commercial buildings remains stagnant

Low earnings hit malls, shops and office blocks but opportunity lies in housing developments

Wahinya Henry and Bernard Gitau @PeopleDailyKe

Potential investors keen on investing in retail and commercial offices in Nakuru county had better think twice according to a survey by a real estate developer.

Cytonn Real Estate Company attributes the relatively low retail yields to low rental rates of Sh91.7 per square feet, which is 39.3 per cent lower than for similar areas in Kisumu town that have rental rates of up to  Sh151 after new malls have just been completed in the lakeside city. 

Rental yield is the return a property investor is likely to achieve through rent, calculated by taking the annual rent income and dividing it by the total amount invested in that property.

The retail space in Nakuru town has rental yields of 5.8 per cent compared to Nairobi, Mombasa and Kisumu that average 9.7 per cent, 10 per cent and 9.9 per cent respectively, says Johnson Denge, Cytonn’s Senior Manager, Regional Markets. 

Nakuru town has just four malls—  two community and two neighbourhood malls. In terms of performance by grade, community malls outperform neighbourhood ones, recording rental yields of 6.8 per cent, two per cent higher than the 4.8 per cent average rental yields recorded in neighbourhood malls.

“The lower yields attributable to lower occupancy rates of 65 per cent for neighbourhood malls, compared to 82.5 per cent for community malls. Retailers prefer the new community malls that attract higher footfall,” says Denge.

A Nakuru resident who declined to be quoted said the licensing of many kiosks (vibanda) on the town’s streets is  also frustrating landlords as businessmen prefer the small but cheaper kiosks compared to renting shops in commercial buildings. “Another menace is hawkers who sell their wares at the doorstop of retail shops selling the same items,” he added.   

Gilbert Kabage, director of Pata Commercial Agencies, a property management firm, said his clients’ efforts to increase rent have been met with resistance with some tenants going to court.  “When we increase the rents, we get many defaulters while other tenants vacate forcibly,” he said.

He attributed the low yields to availability of agricultural produce, which lowers the cost of living. “Nakuru is an agricultural hub which supplies almost all kinds of produce to other counties, including exports to other East African countries.  Therefore, the cost of living is somewhat low,” said Kabage.

The Cyntonn survey is part of the firms’ regional expansion strategy, aimed at continuing to assess investment opportunities in various towns.

On commercial properties, the report says office buildings and mixed-use developments— comprising a blend of both commercial office and retail — are mainly located in the Nakuru CBD.  Average rent for commercial retail spaces  stands at Sh79 per square feet and average yield of 5.8 per cent at an occupancy level of 73 per cent.  “Generally, Nakuru town lacks Grade A office spaces with most of the buildings being Grade C,” says Denge.

On a positive note, he encourages real estate investors in Nakuru county to invest in mixed use developments and in land acquisition. “Retail and the commercial office sectors have a negative outlook while residential has a neutral outlook,” he  says.

According to him, the investment opportunity lies in site and service schemes, in areas such as Kiamunyi and Milimani that have a higher capital appreciation. Overall, residential sector recorded annualised uptake of 26.4 per cent with, apartments outperforming detached units.

Additionally, stand alone units record lower occupancy rates of 68.8 per cent 22.3 per cent points lower than 91 per cent for apartments since the apartments as they are cheaper.

Nancy Murule, Senior Research Analyst at Cytonn Investments, said: “For the residential sector, the opportunity is in three-bed apartments in both the high-end and middle- end-segments in areas such as Milimani, Section 58 and Naka”.

Jackson Wandera, the Director of Nawebuluka Commercial Agency, the report, which highlights how the town records the lowest rental yields among selected cities and towns in Kenya, was spot on.  “Nakuru town is cheap in terms of rental yields because most workers and residents own their houses,” said Wandera.

Despite Nakuru being an economic hub for South Rift Valley region, most people who have invested in the town have purchased plots where they have developed their homes. “A two-bedroomed house in Nakuru goes for Sh10,000 to Sh12,000 compared to Nairobi where a similar home fetches Sh20,000 and above,” he said.

However, Kabage remains optimistic that with Nakuru soon gaining city status, fortunes might change. The fourth largest urban centre in Kenya after Nairobi, Mombasa and Kisumu, Nakuru has been the fastest growing town in East and Central Africa, according to a recent study by UN-Habitat.

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