Westlands, Parklands the Top Performing Serviced Apartments Nodes

Kevin Namunwa | Dec 7, 2020

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Serviced Apartments 2020 report. The report covers the state of the serviced apartments market through looking into the drivers, challenges facing the sector, current and incoming supply, performance, and concludes by pointing out the investment opportunity

According to the report, serviced apartments within the NMA recorded an average rental yield of 4.0% in 2020, 3.6% points lower than the 7.6% recorded in 2019.

This is attributed to declines in monthly charges per SQM and occupancies from Kshs 2,806 to Kshs 2,445 and from 79.4% to 48.0%, respectively. The decline in performance is attributable to subdued demand for hospitality facilities and services due to the COVID-19 pandemic which saw the government ban all international flights and local flights into Mombasa and Nairobi, implement partial lockdown within the NMA among other restrictive measures aimed at curbing the spread of the virus. Some serviced apartments have also been issuing discounts to attract and maintain clients amid a tough economic environment occasioned by reduced disposable income.

The performance of serviced apartments per node is summarized below:

(All values in Kshs unless stated otherwise)

2020 NMA Serviced Apartments Performance per Node
	Unit Sizes (SQM)				Monthly Charges per Unit (Kshs)
Node	Studio	1 Bed	2 Bed	3 Bed	Studio	1 Bed	2 Bed	3 Bed	Occupancy 2020	Monthly Charge per SQM(Kshs) 2020	Rental Yield
Westlands & Parklands	37	57	88	114	196,000	231,811	307,734	324,000	49.4%	3,578	6.1%
Kilimani	47	75	114	193	147,375	203,333	335,000	407,500	48.4%	2,783	4.8%
Limuru Road	44	52	79	116	122,000	174,093	207,143	270,000	51.4%	2,839	4.5%
Kileleshwa& Lavington	38	91	128	166	112,000	198,510	296,773	433,200	48.1%	2,553	4.3%
UpperHill		95	119	195		190,000	290,000	373,333	48.9%	2,121	3.6%
Nairobi CBD	51	82	85	119	104,500	148,188	207,167	295,250	42.1%	2,122	2.9%
Thika Road		70	101	145		100,000	190,000	275,000	48.1%	1,138	2.0%
Average	43	75	102	150	136,375	177,991	261,974	339,755	48.0%	2,448	4.0%
High	51	95	128	195	196,000	231,811	335,000	433,200	51.4%	3,578	6.1%
Low	37	52	79	114	104,500	100,000	190,000	270,000	42.1%	1,138	2.0%

Source: Cytonn Research

According to the report Westlands -Parklands was the best performing node, recording an average rental yield of 6.1%, 2.1% points higher than the 4.0% market average. This was attributed to the proximity to business nodes such as Kilimani, Nairobi CBD and UpperHill, availability of amenities such as the Westgate Mall and Sarit Centre, ease of accessibility and proximity to the main airports that is Jomo Kenyatta International Airport (JKIA) and Wilson Airport. Kilimani was the second best performing node with average rental yields of 4.8% compared to market average of 4.0%. This is however a decline of 4.7% points attributed to 31.6% decline in occupancy rates and 20.5% correction in the monthly charges per SQM. Thika Road (Muthaiga North, Mirema and Garden Estate) recorded the lowest rental yield at 2.0%, and this was attributed to the relatively low charge rates for apartments within the area, given its unpopularity, due to lack of modern and quality serviced apartments in the area, the significant distance from main commercial zones, in addition to security concerns as the area is not mapped within the UN Blue Zone

The table below summarizes metrics that have a possible impact on the hospitality industry, which is the serviced apartments performance, international tourism, MICE tourism and supply

Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook

Serviced Apartments Sector Outlook
Measure	Sentiment	Outlook
Serviced Apartments Performance	In 2020, serviced apartments within the NMA recorded an average rental yield of 4.0%, 3.6% points lower than the 7.6% recorded in 2019, this is lower compared to the residential market performance which had an average rental yield of 4.9%, attributable to the adverse effects of the pandemic on the sector. The performance is expected to improve in the long term owing to the reopening of the economy and the post pandemic recovery strategies that have been put in place to cushion the hospitality industry. The sector recovery will be largely supported by government strategies such as the Ministry of Tourism post-corona recovery funds aimed at offering financial aid to hotel and other establishments in the hospitality industry through the Tourism Finance Corporation (TFC), repackaging of the tourism sector products to appeal to domestic tourists, relaxation of travel advisories and reopening of Kenya’s key tourism markets.	Neutral
International Tourism	The total number of international arrivals through Jomo Kenyatta International Airport (JKIA) and Moi International Airport (MIA) increased from 13,919 persons in August 2020 to 20,164 persons in September 2020. This is an indication of gradual recovery of the tourism industry which will boost the hospitality sector. The second wave of the pandemic in some markets is however expected to slow down these numbers as people limit their travelling options to avoid the spread of the virus.	Neutral
MICE Tourism	Kenya has continued to gain popularity as a MICE hub with, Kenyatta International Conference Centre (KICC) being recognized as Africa’s leading meeting and conference centre (MICE). The performance of the sector has been affected by people shifting towards e-conferencing thus minimizing the need for physical meetings. Some factors that are likely to cushion the performance of Kenya as a preferred MICE hub include calm political environment, aggressive marketing by the Kenyan government and the improving infrastructure.	Neutral
Supply	Serviced apartments in the Nairobi Metropolitan Area (NMA) increased by a 6-Year CAGR of 8.6% to 5,594 in 2020, from 3,414 in 2015. The current developments in pipeline are expected to add to the current supply of the sector thus boosting performance through increasing competition especially in areas like Kilimani and Westlands which have majority of serviced apartments within the area.	Neutral