Nairobi’s serviced apartments recorded improved performance with an average yield of 7.4 per cent in 2018, compared to 5.3 per cent recorded in 2017.
According to the Nairobi Metropolitan Area Serviced Apartments Report, by Cytonn Real Estate, this growth was driven by increased demand, which triggered an increase in charge rates, as well as increased occupancy rates with an average of 80 per cent in 2018, compared to 72 per cent in 2017.
The improved performance is attributed to the stable political environment and improved security, making Nairobi an ideal destination for both business and holiday travellers.
Kilimani area was the best performing node, recording high occupancy rate of 86 per cent and rental yields of 10.9 per cent. The node’s proximity to Jomo Kenyatta International Airport (JKIA), easy access to business zones such as Westlands and Upperhill, and a good transport network, thus ease of accessibility were noted as markers for this performance.
Developments in the Thika Road node (Muthaiga North, Mirema and Garden Estate) recorded the lowest rental yield of 4.4 per cent, attributed to its unpopularity, given the distance from main commercial zones, the lack of modern and quality serviced apartments, in addition to not being within the UN Blue Zone, thus not attractive to expatriates due to security concerns.
Serviced apartments are becoming popular for use by holiday guests who are travelling as families and for business travellers looking for mid to long-term accommodation.
According to the report, the demand has been supported by benefits that come with serviced apartments such as larger spaces compared to hotel rooms. For instance, in Nairobi, while the standard hotel room size is 30-50 square meters (SQM), while the average size of serviced apartments is 75 SQM for 1-bedroom units, 110 SQM for 2-bedroom units, and 140 SQM for 3-bedroom units.
They are considered more affordable given their relatively lower charges compared to hotels. For example, a standard 3-star hotel in Nairobi charges on average Sh14,000 per night for a suite, while a studio serviced apartments charges on average Sh8,000 per night and a 1-bedroom apartment charges on average Sh11,000 per night. Unlike a hotel, a serviced apartment can easily accommodate a family, in addition to allowing one to self-cater, hence creating the home away from home experience that is sought after by many long-term travellers. The other plus is that they are located within or in proximity to other residential developments, hence guests are able to integrate with the community.
Speaking about the supply of serviced apartments, Beatrice Mwangi, Assistant Research Analyst at Cytonn noted that, “There has been a growing supply of serviced apartments with approximately 1,189 additional units expected into the market by 2020, mainly in Westlands and Kilimani. The investment in the theme is fuelled by the greater demand with firms aiming to optimise their travel budgets.
“Apparently more firms are opting to book serviced apartments, for their employees as they are less expensive in the end, with lower operating expenses as compared to hotels, as they require less number of staff and lower ancillary costs for amenities and foodstuffs, and are thus cheaper to run compared to hotels,” she said.
“They can easily be converted to normal apartments, in the case where the former is not performing well, and, the relatively longer tenancy compared to hotels as the clientele for serviced apartments are mainly on long-term stays as compared to those who prefer hotel rooms, and thus the guarantee of a more stable income.’’
According to the report, in the Nairobi Metropolitan Area, the best investment opportunity for serviced apartments lies in Kilimani and Westlands, which are the best performing areas with average rental yields of above 10 per cent.
This is attributed to the good transport network in these areas making them easily accessible, with proximity to business nodes such as Upperhill, good security given that the areas are mapped as UN blue zone areas, and availability of key amenities such as Yaya Centre, The Westgate Mall and Jomo Kenyatta International Airport (JKIA).