TOUGH TIMES

Mall landlords stare at losses as footfall drops

This is on reduced activities by businesses including restaurants and bars.

In Summary

•There has been reduced traffic to malls, which has led to reduced demand for physical retail space due to the growing focus on e-commerce.

•Malls in Nairobi are the most affected with rental yields dropping at malls in the Kilimani area, Mombasa Road, Thika Road, Eastlands, and Ngong Road.

The Westgate shopping mall in Westlands, Nairobi/FILE
The Westgate shopping mall in Westlands, Nairobi/FILE

Investors in malls in Nairobi and satellite towns are grappling with major cuts on returns in their investments, occasioned by the Covid-19 pandemic.

This is in the wake of reduced occupancy on these premises, due to a cut on operations by anchor tenants occasioned by a drop in shoppers traffic to these malls.

Traditionally, major retailers have been the anchor tenants in most malls, driving shoppers to the buildings with smaller retailers and businesses benefiting from the numbers.

Real estate analysts are however now reporting reduced traffic to malls, which has led to reduced demand for physical retail space due to growing focus on e-commerce as retail shops record low revenue inflows.

Measures to mitigate the spread of coronavirus, such as social distancing, closure of bars and entertainment spots, and reduced operations by restaurants (currently only doing take-away) have affected malls’ human traffic.

This has further led to the flight of small businesses, a move that has affected mall investors’ bottom line.

“Shoppers have been shifting more to eCommerce. Most people are not going to shop in malls which has seen malls cut rents or give rent breaks to retain existing clients and attract new ones,” says Beatrice Wacuka a research analyst at Superior Homes Kenya.

Malls in Nairobi are the most affected, according to investment firm– Cytonn, with rental yields dropping at malls in the Kilimani area, Mombasa Road, Thika Road, Eastlands, and Ngong Road, amid an oversupply of to-let space.

Investors in satellite towns of Ngong, Kitengela, Rongai, Ruai and Ruiru are also feeling the heat.

A spot check by the Star at the Thika Road Mall(TRM) showed reduced traffic with only major activities seen at the Carrefour retail store and Safaricom shop.

Other businesses had few to near-zero clientele.

According to a survey by Cytonn, reduction in rental rates in a bid to attract tenants amid a tough economic environment saw the rental rates in the sector post a 2.1 per cent decline to Sh115.1 per square-foot in 2020 into this year.

This is from Sh118 per square foot in 2019, rates that were at a high of Sh154.9 per square foot four years ago.

The average occupancies rate has declined by 0.7 per cent points year-on-year, from 77.3 per cent in 2019 to 76.6 per cent in 2020.

Mall occupancy was at a high of 82.9 per cent four years ago when the segment had few investments.

“In the Nairobi metropolitan area, there is over sully of up to 2.8 million square feet occasioned by huge investments in the capital which is the country’s economic nerve, “ Fidelis Wanalwenge, real estate research assistant at ‎Cytonn Investments, told the Star in a telephone interview yesterday. 

The pandemic has worsened the business situation for tenants and landlords, Mizizi Africa CEO George Mburu notes, mainly on reduced consumer purchasing power which has altered spending patterns.

“The ripple effect of reduced income is empty stalls and stores as tenants cut on their costs of operation. Again, Landlords are no longer reaping big from anchor tenant business models due largely to poor performance of retail sector players,” Mburu said.

Over the last few years, the collapse of giant retailers due to a rise in financial difficulty is making it difficult for landlords to depend on this model to drive foot traffic to the malls, he adds.

Major retailers that have cut operations in recent times include Tuskys which as of December last year, had closed 14 branches from a total of 64.

Uchumi had  four branches from 37 while South African retail giant Shoprite which is exiting the Kenyan market had two branches down from four.