Westlands has the highest real estate returns in Nairobi while Kasarani has the lowest, a new report indicates.

The Cytonn Investments’ Business and Market Outlook report launched on Monday projects the country’s real estate sector will grow at a robust pace this year driven by the growing middle class’ desire to own homes. Real estate will be the best investment for those seeking high returns, the investment management firm said.

Return on real estate investment is higher in Westlands at 7.2 per cent according to the report, which covers 10 key residential areas.

A three-bedroom apartment in this area rakes Sh150,000 in monthly with a sale price of Sh25 million.

Kilimani is second with a 4.6 per cent yield where a town house is averaged at Sh250,000 per month, with a sale price of Sh65 million.

Ruaka is third with a 4.2 per cent yield where monthly charges for a three-bedroom are an average of Sh35,000 and costs Sh10 million if for sale.

Other areas are Lavington with a yield of four per cent, Ongata Rongai ( four per cent),Kitengela (3.8 per cent), Thika Road (3.5 per cent),Karen (3.2 per cent), Lang’ata three per cent and Kasarani the lowest at 2.1 per cent.

“Increased development along key infrastructural nodes, which have been brought about by the development of bypasses such as Ruaka and Karen are now attractive real estate development zones,” Johnson Denge, Cytonn’s real estate services manager.

A higher number of 21 to 35-year olds living in Nairobi and rapid urbanisation have created an opportunity for development which caters to their needs, the report states. This youth bulge, the report adds, has led to higher supply of middle-income housing and growth in the number of suburban retail malls.

“We expect the major basis for real estate market in 2016 to be the growing middle class. 2015 saw a vibrant residential real estate investment with many firms launching projects in various parts of the country which is expected to continue,” said Denge.

Rental growth in some of the high-end markets like Kilimani is however projected to remain low this year, “as the market nears saturation point”.

Cytonn expects focus to be on low-income housing as developers explore Nairobi’s satellite towns.

Alternative building technologies are also expected to increase as developers seek to provide more affordable housing.

This is expected to address the huge housing deficit especially in the city’s low-to middle-income market of over 200,000 units per annum accounting for over 50 per cent.

Data by the Kenya National Bureau of Statistics shows the real estate sector’s year on year growth as at quarter three of 2015 was 5.4 per cent, with the overall sectoral contribution to Gross Domestic Product remaining flat at eight per cent.

In the commercial sector, office yields are expected to remain stable.This ranges between eight and nine per cent for prime offices and seven per cent for grade B offices.

“We expect development of Grade A offices to increase in 2016 as demand increases, they will also fetch higher rents and selling prices due to increase in land value,” the report read.

Retail developments are also expected to have lower yields because of increased supply, according to Cytonn, with the current average uptake of retail space being 75 per cent.

“We expect more international retail and investment groups to enter the Kenyan market as they explore attractive emerging markets so as to tap into the growing middle class,” Denge noted.