A report by Kenyan investment firm, Cytonn Investments has highlighted the investment opportunities available in Kampala, Uganda. The firm recently conducted a market research on Kampala’s real estate market focusing on residential, commercial and retail sectors to inform on the viability of investments in 2017. The study found that the East African city enjoys average rental yields of 6.8%, 10.6% and 10.2% for residential, commercial office and retail categories respectively. In comparison, Nairobi’s rental yields were 5.65%, 9.3% and 10.0% for the same categories of real estate.
According to the report, commercial office offers the most attractive opportunity for investors with rental yields of 10.6% on average with occupancy rates of 86%. The high returns are attributable to low supply of quality office space which has led to developers riding on demand to charge prime rents. The low demand has also led to conversion of residential space into offices into offices by corporates. In addition, fractional selling trends are taking off in the Kampala market as developers seek to offload commercial buildings faster.
High end apartments are the best performing residential property with average rental yields of 10% for two bedroom apartments and 8.9% for three bedroom apartments. In addition, occupancy rates are high at more than 80% and prime rents averaging USD 1900 and USD 2552 for two-bedroom and three-bedroom apartments respectively. Middle income areas however, are the most popular due to high occupancy rates of 88.8% and relative affordability although they have a rental yield of 5.9%.
The residential market is majorly driven by improved infrastructure, high population growth rate and rapid urbanization. These, together with increased multinational operations, increasing disposable income and other government initiatives have boosted the market in recent times. According to Uganda’s Ministry of Lands, the country has a housing deficit of 1.6 million units as at 2016 and with Kampala having an annual deficit of 100,000 units per annum. This is expected to grow as currently, 60% of Ugandans live in informal settlements.
The retail sector is well developed with a mall supply of 182,000 square feet, nearly half of Kenya’s mall space. The upsurge of malls over the last five years has been driven by the consumer oriented culture of the local population. The average rent for retail space in Kampala is USD 18 per square feet per month while the occupancy rate is 71.2%, lower than Kenya’s 83%. This is due to the high supply of retail space and the poor location of some malls. The best performing malls are community malls which have an average rental yield of 11.8%.
As for land performance, prime land sells for more than USD 2.5m per acre in suburbs such as Kololo and Nakasero. However, land is more affordable in middle-income areas selling at between USD 83,300 and USD 278,000 per acre. Experts estimate that land in the city has grown 3 fold on average over the last four years, an equivalent of 31.6% in capital appreciation boosted mainly by infrastructural improvements.
In summary, the study suggests good prospects for developers in the residential and commercial office markets while they remain cautious on the oversupplied retail market. However, for tenant interests, retail space is up for grabs.