Owners of half-empty shopping malls set to lower rent as reality bites
Owners of shopping malls are set to lower their rents as increased supply of the commercial properties escalates competition for tenants, according to players in the industry.
Malls in Nairobi, where quality properties are currently charging monthly average rents of between $32.5 (Sh3,250) and $48 (Sh4,800) per square metre, are facing the highest pressure to reduce their lease fees as more properties are opened.
“Even though the market has seen upward movement in rental levels in recent years, attributable to increased development quality and international retailers entering the local market, there is likely to be downward pressure in rentals as the local retail supply reaches saturation,” Grit Real Estate Income Group said in a review of the Kenyan commercial property market.
The Mauritius-based multinational holds a 50 per cent stake in Naivasha’s Buffalo Mall and plans to list on the London Stock Exchange (LSE) at the end of this month.
Estimated formal retail supply in Nairobi and Mombasa has grown rapidly in the past few years to stand at the current 630,000 and 80,000 square metres respectively, according to Grit.
Some of the new malls that have opened in Nairobi in the past two years are NextGen Mall along Mombasa Road and Two Rivers and Rosslyn Riviera along Limuru Road.
New developers are expected to add another 98,000 square metres of space in Nairobi alone this year, further tilting the market in favour of tenants.
“The recent surge in retail supply has resulted in slower uptake of new retail space as well stagnating prime rents, culminating in an increasingly competitive market which has prompted some landlords to offer incentives in a bid to attract tenants into recently completed centres,” Grit said.
The company did not specify the incentives landlords are using but analysts say these include rent-free fit-out periods of up to three months and free parking for shoppers visiting specific shops.
“It’s a tenants’ market,” said Kenneth Masika, a partner at valuation and property agent Lloyd Masika, adding that the glut has encouraged some tenants to negotiate for lower rents when renewing their leases.
The surge in mall construction has been driven by growth of the middle class and entry of international retailers in the local market.
Entry of more foreign retailers could mitigate the decline in rents, Grit noted.