Mixed-Use Developments: Sector Introduction
- Investment Desk
- Oct 29, 2024
- 6 min read
Updated: Oct 31, 2024
October 2024
The demand of the mixed-use developments has been seen to stem from ‘strategic’ and efficient locations, in urban areas with ample infrastructure, examples being Garden City and Two Rivers, that cater to both high and middle-income demographics. This accessibility attracts a significant number of potential clients. MUDs also promote sustainable living by reducing the reliance of vehicles as residents are more likely to walk or cycle to access nearby amenities. This contributes to lower carbon emissions and a sustainable urban lifestyle.
The real estate industry in Kenya is growing at 5.2% as at 2023, due to growing population, increased urbanization and an expanding middle class. This makes the demand for housing outstrip its supply. Low interest rates are going to stimulate the continued growth in this sector, as well as high employment rates. These are some things to focus on going forward. Kenya’s real estate market has come a long way, evolving into a powerhouse in East Africa and one of the fastest-growing in the world. With robust sector performance, increasing private equity investments, and a favorable investment climate, Kenya’s real estate sector is poised for sustained growth.
In recent times, developments with combined real estate including Residentials, commercial, retail, and hospitality, has become a trend. Due to this integration, a single development project serves more than one purpose within a single location. In Nairobi, mixed-use developments such as the Two Rivers, bring all necessary amenities closer to home. Residents no longer have to spend hours commuting between home, work and shopping centers. Given the scarcity of land in urban areas especially, these kinds of developments ensure the effective utilization of available land by integrating various asset classes within a single project/location.
The demand of the mixed-use developments has been seen to stem from ‘strategic’ and efficient locations, in urban areas with ample infrastructure, examples being Garden City and Two Rivers, that cater to both high and middle-income demographics. This accessibility attracts a significant number of potential clients. MUDs also promote sustainable living by reducing the reliance of vehicles as residents are more likely to walk or cycle to access nearby amenities. This contributes to lower carbon emissions and a sustainable urban lifestyle.
MUDs provide attractive returns to investors as the incorporation of diverse real estate themes within a single location makes MUDs more financially rewarding compared to single-use developments. Investors can capitalize on multiple revenue streams from the sale and lease of residential, office, and retail spaces while diversifying their risks across various asset classes. This shields against market forces that might negatively impact a specific theme, such as low uptake or demand. According to 2023 report by Cytonn Investments, MUDs recorded an average rental yield of 8.4% in 2023, 1.3% points higher than the respective single use themes in a similar period in the previous year. This performance is attributed to the changing client preferences and the diversity in amenities and social offerings of MUDs.
Segmenting the real estate types in the MUDs, the average rental yield of retail spaces in Mixed-Use Developments came in at 9.8% in 2023, 1.3% points higher than single use retail developments that realized an average rental yield of 8.5%. This was mainly attributable to the high rental rates that MUDs generated at Kshs 211 per SQFT when compared to the Kshs 189 per SQFT recorded for the single-use retail spaces.
Rental yield in commercial office spaces in MUDs came in at 8.0%, 0.7% points higher than single use commercial developments which realized an average rental yield of 7.3% in 2023. The performance by MUDs was largely attributed to the high rental rates chargeable per SQM within the developments driven by; the presence of prime grade A offices fetching higher rental rates owing to their superior quality, sustainable and energy efficient features designed to enhance businesses and workers’ experience; and their strategic locations appealing to multinationals and international organizations which enhances demand.
Rental yields in residential units within MUDs achieved an average rental yield of 6.8%, marking a 1.1% increase compared to the single-use residential market average of 5.7%. This relatively improved performance was primarily influenced by an increase in asking rents to KES 1,603 per SQM from KES 1,030 per SQM recorded in 2022. Additionally, the supply of newer developments decreased as compared to a similar period last year which allowed for absorption rates to stabilize. Notable projects delivered during the year include, Centum's Loft Residences comprising 32 four-bedroom luxurious units situated within Two Rivers. This was in comparison to last year’s supply of 225 units injected through the Mi Vida project at Garden City.
MUDs Market Performance 2022 - 2023 | ||||
MUD Themes Average | Market Average | |||
| Rental Yield (%) 2022 | Rental Yield (%) 2023 | Rental Yield (%) 2022 | Rental Yield (%) 2023 |
Retail
| 8.8 | 9.8 | 7.8 | 8.5 |
Offices
| 7.3 | 8.0 | 7.0 | 7.3 |
Residential
| 5.2 | 6.8 | 5.5 | 5.7 |
Average
| 7.4 | 8.4 | 6.8 | 7.1 |
Source: Cytonn Investments
Case Studies
1. Two Rivers
The flagship project of Two Rivers is the Two Rivers Lifestyle Mall, a 67,000 SQFT of retail space with 180 stores and 21,000 SQFT of office space with 40 office spaces. Apart from the mall, the 102-acre project contains other developments such as 3-star hotel; City Lodge Hotel, Victoria Bank and over 100 luxury apartments contained in the Loft Residences, Cascadia Apartments, Riverbank Apartments and 26 Mzizi Court.
The development is a project of the Centum Real Estate Company and attracted USD 155 Million funding or over Kes.14 billion in debt and equity from The Co-operative Bank of Kenya Limited and AVIC International, Industrial & Commercial Development Corporation (“ICDC”). A sum of USD 70 Million (over Kes. 6.3 billion) in equity was invested in the project by the AVIC international Company. This is in addition to the USD 5 Million (over Kes. 450 million) in equity invested by the Industrial and Commercial Development Corporation of Kenya. The Co-operative Bank of Kenya also secured a local debt funding of USD 80 Million (over Kes. 7.2 billion).
2. GTC
GTC is a 7.5-acre urban HOPSCA () complex by Nairobi GTC Industry Limited. It features an international 3A+ Grade offices, luxurious Five-star Hotel JW Marriott, Pan Pacific Serviced Suites, GTC Residence, and GTC Boutique Mall. The Global Center (GTC) in Nairobi was a project by AVIC International Real Estate, a subsidiary of the Chinese state-owned Aviation Industry Corporation of China (AVIC).
The development includes:
· A 42-floor Office Tower: Designed to house corporate offices and business hubs.
· A 35-floor Hotel Tower: Hosting the JW Marriott hotel, catering to business travelers and tourists.
· Four Residential Towers: Offering luxury apartments with modern amenities from one to four-bedroom apartments.
The project was financed through a combination of equity investment by AVIC International and debt financing from Chinese banks. The total investment for the GTC was approximately KES 52 billion (around USD 480 million). Planning and construction ran from 2014 through to 2021. Delays due to the Covid -19 pandemic and some minor regulatory hurdles affected their construction progress. It was eventually launched in 2021, with the office and residential towers being operational. The JW Marriot luxurious hotel had their grand opening in march 2024 to mark full operation of the GTC.
Kenya’s real estate market has come a long way, evolving into a powerhouse in East Africa and one of the fastest-growing in the world. With robust sector performance, increasing private equity investments, and a favorable investment climate, Kenya’s real estate sector is poised for sustained growth.
Resources
10. GTC
11. GTC development
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