50pc drop in mall tenancy signals retail space glut

Money Markets

A section of the Westgate Mall in Nairobi. PHOTO | SALATON NJAU |  NATION MEDIA GROUP

By OTIATO GUGUYU, dotiato@nationmedia.co.ke

In Summary

• Uptake of tenancy in malls fell by nearly one half last year confirming fears that formal retail space is oversupplied.
• According to the 2015 market update by Knight Frank most retailers were in a wait-and-see mode as they sought to assess performance of new premises.
• This comes after Britam Asset Managers chief executive Kenneth Kaniu told investors at the East Africa Property Investment Summit that beyond the Two Rivers Mall expected to open by the end of this year, no further retail space will be required in Nairobi as there will be oversupply.

Uptake of tenancy in malls fell by nearly one half last year confirming fears that formal retail space is oversupplied.

According to the 2015 market update by Knight Frank most retailers were in a wait-and-see mode as they sought to assess performance of new premises.

“Absorption of formal retail space declined by 45 per cent compared to the first half, largely because major retailers had already secured space in the upcoming developments,” the Knight Frank report read.

The report indicates that Westgate Mall which opened in the second half of last year had Nakumatt as the anchor tenant with an overall uptake of more than 80 per cent of its floor space.

The mall comprises of about 17,300 square metres of retail space that contributed 27 per cent of the formal retail space released in the market in 2015. This means that one client took up almost a quarter of new retail space alone.

This comes after Britam Asset Managers chief executive Kenneth Kaniu told investors at the East Africa Property Investment Summit that beyond the Two Rivers Mall expected to open by the end of this year, no further retail space will be required in Nairobi as there will be oversupply.

READ: Britam managers say too many malls have been put up in Nairobi

According to Knight Frank’s ‘2016 Sub-Saharan Shopping Centre Development Trends’, Nairobi which has a population of 3.8 million people already has 391,000 square metres of existing mall space with an additional 470,000 square metres in the pipeline.

Southfield Mall in Embakasi has broken ground while major launches expected in the first half of 2016 include the 30,000 square metres Diamond Plaza 2 in Parklands that will incorporate a revolving restaurant and Two Rivers on Limuru Road. The Hub in Karen opened on February 4.

The market is worried that floor space is not selling as fast as anticipated with some malls running empty stalls as some owners opt to occupy huge chunks with their own business.

READ: Booming malls entice retailers despite glut fears

Average returns in the sector, however, edged up with the purchase of Greenspan Mall during the period under review while rents remained at Sh4,800 ($48) per square metre monthly.

“Prime retail yields in 2015 closed at 11.5 per cent, up 150 basis points from 10 per cent in 2014.

“The most notable transaction was the acquisition of Greenspan Mall by Stanlib for the Fahari I-REIT at approximately Sh2 billion ($20 million),” Knight Frank said.

In further bad news, the update indicated that decisions by oil companies to pull out on tough operating environment coupled with end of government commission tenures have taken a shine off office space segment.