RETAIL SPACE

Mall owners lower rent to retain tenants

Reduced business has forced landlords to reduce rental prices

In Summary

•An oversupply in commercial retail space boosted by increased development of malls has led to high competition, especially in the low-end market

•Despite retail space being at the centre of new real estate developments in the country, mall owners have had to reduce rent prices to stay afloat in the highly competitive market

Garden City Mall located along the Thika Super Highway
Garden City Mall located along the Thika Super Highway
Image: ENOS TECHE

Landlords are now opting to reduce rent, to attract retailers as they stare at empty stalls owing to tough economic times.

“We thank you for being our valued customer over the period. We have noted a serious business fall months. We, therefore, extend our support to your business by reducing rents,” Sion Realtors said in a notice to tenants.

Some landlords are providing concessions such as longer fit-out periods, partial contributions towards tenant fit-outs, or giving discounted rentals so as to retain existing tenants and attract new ones.

An oversupply in commercial retail space boosted by increased development of malls has led to high competition, especially in the low-end market.

Despite retail space being at the centre of new real estate developments in the country, mall owners have had to reduce rent prices to stay afloat in the highly competitive market.

Shopping malls, especially in low-end areas, now have to compete for footfall with second-tier supermarkets and stalls.

Knight Frank’s first-half market update released in September attributed the decline to the continued oversupply of commercial space in some locations and the current economic slowdown.

Rents for prime retail shops decreased by 5.9 per cent to $ 4.8 (Sh494 ) per square foot per month in the first half of 2019, while service charges across retail malls in Kenya ranged from Sh45 to Sh60/sq ft/month.

According to analysts at Cytonn, an oversupply in retail space, especially in the Nairobi Metropolitan has resulted in the cropping up of ‘ghost malls’ with low occupancy rates and lower rental yields.

“The outlook for the sector is neutral and we expect to witness reduced development activity in Nairobi, with developers shifting to county headquarters in some markets such as Kiambu and Mt. Kenya that have retail space demand of 0.8 million and 0.2 million square feet, respectively,” Cytonn Investments research analyst Wacu Mbugua said.

According to the report by Cytonn average rental yields declined by 1.6 per cent to seven per cent in 2019 from 8.6 per cent last year driven by an 8.7 per cent drop in occupancy rates to 77.3 per cent from 86 per cent in 2018.

“The decline in performance is attributable to an introduction of 0.8 million square feet of retail space into the Kenyan market and constrained spending power among consumers due to a tough financial environment,” the report stated.

The glut in commercial retail real estate has also led to a decline in non-residential developments.

According to Knight Frank prime commercial office rents in the city also remained unchanged during the first half of the year at $ 1.3/ (Sh134 ) sqft/month.