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.
Cytonn’s Kenya Retail Sector report 2018 shows developers have had to reduce rent by 6.2 per cent to Sh132.1 per square foot compared to Sh140.9 last year. This is 14.72 per cent lower than Sh154.9 rent charged per square foot in 2016.
The glut in commercial retail real estate has also led to a decline in non-residential developments.
Kenya National Bureau of Statistics data shows the value of non-residential buildings approved between January and June dropped 35.57 per cent to Sh37.58 billion compared to Sh58.33 billion the same period
last year.
This in turn resulted in a 27.7 per cent decline in the value of approved building plans during the review period to Sh100.76 from Sh128.67 over the same period last year.
Shopping malls, especially in low end areas, now have to compete for footfall with second tier supermarkets and stalls.
“In the Nairobi market perspective, we note that increased supply is likely to constrain the performance of the retail sector, where there is already an oversupply of two million square feet of retail space,” the report stated.
An over reliance by developers on supermarkets as anchor tenants and failure to make informed decisions before setting up malls has also slowed down mall uptake across the country especially with the decline of top-tier retailers including Uchumi and Nakumatt.
“Most developers are setting up malls as a knee-jerk reaction. They have seen the market is lucrative and want to make quick gains,” Waterfront Mall Karen director David Muguku said.
While malls in low-end markets have registered slow uptake, the report by Cytonn shows malls in Karen, Westlands and Kilimani have registered improved uptake with higher rental yields.
“Westlands, Kilimani and Karen were the best performing retail suburbs in Nairobi with average rental yields of 12.4, 11.8 and 10.8 per cent, respectively, due to the fact that they are high end neighbourhoods hosting most of Nairobi’s middle-end and high-end populations,” the report stated. Developers target international anchor tenants to attract customers and increase footfall.
