The way you answer boils down to your own level of "expertise" in music, particularly in this genre. Are you an aficionado who could give constructive feedback on how to improve the music, or (despite your avid fandom) are you still just an dedicated listener who knows what you like, but can't really articulate why?
In the end, unfortunately, anything you say might be hurtful. There's no way around that when criticizing someone's artistic effort. They may feel they poured their heart and soul into the work, and then you come along and shred it, or dismiss it thoughtlessly.
But let's assume you know enough to give expert advice, and your goal is to help them understand what's doesn't work, so they can go back and make it work. If that's the case, you might "pre-frame" the discussion by getting permission to be honest:
Let me ask you this: Do you just want my approval, or are you looking for serious artistic feedback?
As anyone who's been to art school knows, other artists are not shy about laying into your art, brutally criticizing anything they might see as a flaw. A good artist accepts this and learns to take it with equanimity. Not all criticism is valid, but even the most gratuitous can contain some grain of truth that helps them improve. It's a tough, but ultimately rewarding process.
If your friend is willing to get kicked around a bit, then you can soften the blow by prefacing the negative criticism with something positive. For example:
I like the way that you strung together the lyrics in this phrase -- but, I have to tell you, they don't flow with that beat at all. You need to think about mixing up your rhythms to let the music be part of your unique voice, and not just background noise.
As you might expect you should avoid saying things like, "That's utter trash!" not because they're mean-spirited but because they don't contain any actionable information. Which is to say, don't sugar-coat everything, but do ultimately give constructive advice that to encourage them to try harder.
All this assumes you're willing to put in the time to help, of course. This can take hours or even days, so be sure you are OK getting sucked in before you move forward.
On the other hand, if you don't want to take the time, or they don't seem to want your brutal honesty, or (as mentioned at the beginning) you don't feel you're expert enough to give an informed opinion, you can dissemble:
Well, I listened to your music, but I don't think I'm really the right person to judge it as your style isn't really my cup of tea. You should ask someone who is into that style.
If they counter that they know you are into "SoundCloud rap" and that doesn't make sense, you can try to draw some fine distinctions between what you like and what you don't:
Yes, I know. But I'm into music that has kind of jazzy, complex, upbeat rhythms. Yours is more dark, which already turns me off to it. But other people might get into that.
Try to stay honest by stating what you don't like about it, e.g. "it's too downbeat", "it's too slow", "you're not really rapping about things that interest me", and so on. This allows them to understand what it is that you didn't like, but suggests it's just a personal, and not a general opinion.
If nothing like that comes to mind, fall back on something innocuous and meaningless:
I'm sorry, I just couldn't get into it.
This might not work, as your friend is likely to press for details, but it is less unfriendly than stating your actual opinion.