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December 15, 2018

Vacant retail space goes up as shoppers go online

An empty parking yard within the evacuated Garden City shopping mall in Nairobi /REUTERS
An empty parking yard within the evacuated Garden City shopping mall in Nairobi /REUTERS

Vacant spaces in malls are expected to increase as more retailers explore online shopping options to reach consumers, a new sub-Saharan report on real estate shows.

The Fusion African Monitor report, published by equity firm Fusion Capital, notes there is an oversupply of malls in the country which has not attracted developers' enthusiasm for the sector.

There are over 20 malls in Nairobi alone, all barely five years old. In the last two years, Kenya's construction and real estate sector received Sh54 billion from three top Chinese companies namely AVIC International, China Wu Yi and Twyford Ceramic.

With two companies, Jumia Kenya and Kilimall, dominating the Kenyan online retail sector at the beginning of 2017, the year closed with four companies all seeking to control the sector this year.

The other two include OLX, and Safaricom-owned Masoko which was unveiled last November.

A number of companies such as Deacons have also adopted e-commerce platforms to sell their products across the four major platforms.

 According Fusion Capital, the increase in vacant spaces is attributed to high rental costs which in most instances are not suited for the population living around the mall.

Latest real estate sector report by Cytonn Investment indicate that the high cost of rent is usually passed on to retailers looking to rent, due to the cost incurred by developers in servicing land through roads, water supply and sewer systems.

Other reasons for the reduced occupancy of mall space include accessibility from the main road such as the case of Garden City Mall, and mall location such as the case of Juja City mall.

The report adds that last year also recorded a significant reduction in mall spaces due to a slowdown in consumer spending and both local and international spending brought by political uncertainties.

In the report, investors have been cautioned against investing in high income residential units due to an oversupply within Nairobi and its environs.

“The reality is that until the mortgage market opens up, there are very few people able to spend atleast Sh20 million or more on a residential unit,” Fusion Capital real estate director James Maclean said.

Maclean advises that investing in low income housing developments would be a best bet for investors as the sector is currently undersupplied.

“This sector is undersupplied because margins remain razor thin. If the government creates the relevant incentives to widen this margin, low income housing could be a boom market for 2018,” he says. 

Also listed as key investments projects is the student housing apartments as the most universities are keen to adopt a model of housing all first years’ students in campus.

Warehousing and factory development and secondary city retail are the other listed markets listed as potential sectors for investments in 2018.

However, to achieve the set 6.2 per cent annual growth in the real estate sector and a brighter outlook of the sector in 2018, the report states that there is need for less or no political interference while banks should resume lending.

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