Lots of retail space, not enough tenants in Kampala

Acacia Mall, one of the upscale shopping malls in Kampala, Uganda. PHOTO | MORGAN MBABAZI | NATION MEDIA GROUP 

By BERNARD BUSUULWA

In Summary

• Whereas competition attributed to new, modern and accessible malls outside the city centre is blamed for the decline in shoppers’ traffic in large malls in the heart of Kampala, the pending launch of new shopping malls built close to the city that are expected to charge $12-$14 per square metre has exerted more pressure on existing malls to discount their rental prices.

A weakening economy, empty space, and new construction projects are pushing Kampala developers into a price war as they seek to attract and retain tenants.

Earlier this month, Forest Mall, a shopping facility on the Kampala-Jinja highway, announced a discount offer of $10 per square metre for non-prime retail space plus the first and second floors of the adjacent new building that is nearing completion.

The current price for prime office and retail space in Kampala City is $12-$60 per square metre, according to data compiled by Knight Frank Uganda.

While the election fever largely constrained consumer spending during the first quarter of this year, weak economic activity has hit various sectors, slowed down investment activities and resulted in low growth outcomes, economists say.

Uganda’s economy grew by 4.8 per cent against a target of five per cent during 2015/16 while tax revenues posted a deficit of Ush404.54 billion ($118 million) during the same period.

“Overall, there was an average decline of one per cent in the footfall to malls managed by Knight Frank Uganda from January to February. This is attributed to the negative post and pre-election speculation. The average daily traffic reduced by 2.1 per cent, compared with Q2 and Q1 2016 figures, because Easter fell in March, which accounts for the higher traffic, instead of April as is usually the case…” reads Knight Frank Uganda’s half-year 2016 report on real estate.

Whereas competition attributed to new, modern and accessible malls outside the city centre is blamed for the decline in shoppers’ traffic in large malls in the heart of Kampala, the pending launch of new shopping malls built close to the city that are expected to charge $12-$14 per square metre has exerted more pressure on existing malls to discount their rental prices.

Slow rental uptake in the retail market has led to muted occupancy rates in new shopping centres, with some posting less than 10 per cent absorption in the first quarter of business.

“Our refurbished section has registered occupancy of about 4-5 per cent since it opened to the public three months ago, but our old section has realised an occupancy rate of 98 per cent to date,” said Daniel Lubwama, property manager at Cham Towers, a prominent shopping arcade located close to the central business district.

Our rental charges are in the range of $12-$18 per square metre and this price structure favours long term clients. But taxes and insurance bills have proved a big headache to mall owners and also threaten our returns on investment,” he added