Money Markets
By VINCENT ACHUKA@vachuka@ke.nationmedia.com
In Summary
When you step into the soon-to-be-opened Two Rivers
Mall in Ruaka, you will be forgiven for thinking you have left Kenya and
entered a first world country.
And why not? You will be strolling on Sh17 billion worth of
real estate, with more than 200 stores to shop from, spread over 700,000
square feet dotted with international brands like Swarovoski, Flormar,
Vox, Colosseum Patisserie, Villeroy & Boch and Eugen Klein.
The anchor tenant is Carrefour. And yes, there are plans to install a dolphinarium for visitors to watch dolphins.
But drive just two kilometres away to Ruaka town
and you will be confronted with donkeys ferrying water, idle youth
chewing miraa and touts competing for passengers to board matatus.
Another three kilometres away on the Northern Bypass, families live in single-room shanties at Marurui slum.
This is the dilemma that developers are facing as
the debate shifts to whether Kenya’s middle class has enough numbers,
purchasing power and growth to match the speed at which malls are being
erected.
There is a fear that by producing similar products
and competing for similar customers, the mall industry could be pushing
itself to market cannibalisation.
This is a situation where a new product fails to
appeal to a new segment of the market and instead eats into the existing
market share of its competitors, resulting in an overall reduction in
sales and, eventually, the death of some players.
A similar scenario is playing out in the United
States, a country widely referred to as the mother of the mall culture,
where a construction boom has made the country over retailed.
This, in addition to the rise of online shopping,
has turned what were once shrines of consumerism into ghost buildings
with some being turned to medical centres, colleges and churches.
Two Rivers will take over from The Hub in Karen as
the biggest mall in East Africa. The Hub has held this position since
its opening in February, with 376,000 sq ft. Garden City on Thika Road
held this title for eight months, from May last year, with 355,000 sq
ft.
Sophisticated design
And come May next year, Waterfront, also in Karen,
will add another 420,000 sq ft of shopping space to overtake The Hub as
the second largest mall in the region. Just like Two Rivers, it will be
sophisticated in design and tenant mix, with a three-acre man-made lake
at the centre.
Experts say this will be the trend as Kenya’s mall
culture crosses the demand/supply equilibrium, especially in Nairobi, as
developers are forced to be creative to attract tenants and shoppers.
“It is no longer an issue of just building a mall
hoping to attract clients. It is about placing it in the correct place
and having the right tenant mix to attract shoppers,” says Mr James
Hoddell, the chief executive of Mentor Management Limited.
He adds: “Many malls which are not designed to meet the needs of
ordinary shoppers are placed in areas where many such people live, or
in prime areas but with little population density or traffic. This is
causing problems, like on Thika Road.”
The 46-km superhighway has six malls: Garden City, TRM, Juja
City, Spur Mall, Uni City and Mountain Mall. A seventh mall is under
construction at Roasters, just next to Mountain Mall.
But apart from TRM, Garden City and Mountain Mall, the rest are virtually ghost malls with very low occupancy levels.
Uni City, which is owned by Kenyatta University
(KU), was completed early last year but is yet to get an anchor tenant.
Uchumi Supermarkets, which had expressed interest, pulled out over
alleged cash-flow problems.
Naivas has shown commitment but is yet to open
shop. Without an anchor tenant, KU will find it difficult to convince
other clients, according to Arc Consultants.
“The anchor tenant occupies large retail areas for a
small rent but generates the most customer traffic, while preferential
tenants — who fall in the second category — represent brand names around
which the shopping centre is built,” says the company which offers real
estate advisory services.
“The tenant mix is what causes customers to visit the shopping centre. It must fit the targeted income group,” it says.
Kenya is currently leading in sub-Saharan Africa,
excluding South Africa, in terms of availability of shopping space. Real
estate consultancy firm Knight Frank recently said Nairobi alone has
five million sq feet of shopping space.
Competitive edge
This is bigger than any other city excluding
Johannesburg and Cape Town, which are both in South Africa, according to
the report “Shop Africa 2016”.
The report says another 5.1 million sq ft are in
the pipeline, which will firmly secure Nairobi as sub-Saharan Africa’s
largest mall development spot.
But is there money still to be made, or is the mall
construction boom headed to a glut, like in the office and high-end
real estate industry?
It depends on whom you ask. Last year, the Kenya
National Bureau of Statistics (KNBS) said the country’s retail sector
generated Sh460 billion, a 53 per cent jump from Sh300 billion in 2011.
“The competitive edge of any mall is its ability to
provide consumers with a variety that would suit their tastes and
appeals. Waterfront’s unique selling point, for instance, will be that
it won’t be just a mall but a town centre,” says Ms Laura Mutindi, the
project manager.
“A key consideration should be provision of unique
selling points when developing a mall so that the need of every shopper
is satisfied. There is a need to convert informal retail into formal
retail, which will benefit all stakeholders,” says Mr Kevin Kaburu,
director of marketing and communications at Centum Group, the developers
of Two Rivers.
It would cost a tenant between Sh200-Sh380 per sq ft
at Waterfront, which will have 206,000 sq ft of lettable space.
Conservatively, this means the mall owners will make about Sh41 million
monthly, assuming 100 per cent occupancy. Ms Mutindi says Nakumatt have
already confirmed that they will be the anchor tenant, taking up 70,000
sq ft.
But reaching 100 occupancy level is getting increasingly harder as more and more malls join the market.
Shujaa Mall in Kayole is almost 50 per cent empty,
two years after it was opened. Britam Asset Managers say it is time
developers ventured outside Nairobi.
“After the opening of Two Rivers Mall, no further
retail space will be required in Nairobi, as there will be oversupply,”
Britam Asset Managers chief executive officer Kenneth Kaniu says.
But Nakumatt, the anchor tenant of most of the big malls (20 in total), disputes this.
“From our market research, we are nowhere near
saturation point,” says Mr Thiagarajan Ramamurthy, the regional
operations and strategy director.
“Like many other formal retail aspects, malls are
segmented and designed to appeal to a specific market. We have many
middle-level malls and very few general level and high-end malls.”
He adds: “In Kenya, the formal retail penetration
is estimated at about 18 per cent. This means we have a long way to go
before we attain an optimum retail penetration of about 40 per cent. It
is however fair to say malls are still being patronised by a minority of
the segment.”
Key factors for the surge in mall culture are
urbanisation, a huge young population and a rapidly increasing middle
class. These have led to an improvement in the economy.
Kenya rebased its Gross Domestic Product in 2014
from $44.1 billion to $55.2 billion, crossing the threshold to become a
lower middle income economy.
According to KNBS, Kenya’s middle class is anyone spending between Sh23,670 to Sh199,000 a month.
But Mr Hoddell argues that what is considered “middle class” in Kenya does not match the target market of most of the malls.
“This is bound to create problems in the short term
but it will sort itself out as the market corrects itself. As
competition increases, mall owners will realise that not all Kenyans
will walk to a Nike store and buy shoes; and they will be forced to
re-adjust their expectations,” he says.
But Mr Jonathan Yach, The Hub’s manager, says:
“Retail is about adventure. Ultimately it is those that embrace
diversity, encourage community connection and create an environment
where people feel at their very best and happiest through everyday
moments, that will survive.”
The Hub’s occupancy rate is currently 80 per cent
No comments:
Post a Comment