‘CBN intervention in other areas without grants for mall developers will trigger high rent’

Mr. Olumide Akinsanya is a civil engineer and Chief Executive Officer, Median Infrastructure Company Development Limited that specialises in the development of retail properties. He spoke to CHINEDUM UWAEGBULAM on the challenges facing retail real estate and ways to attract more foreign direct investments to the sector.

Despite the COVID-19 pandemic disruption, the global retail real estate sector saw a significant growth, which is leveraged by digitization of work, the transformation of physical retail, and the shift towards environmental, social and governance (ESG) considerations. How has the sector faired in this direction?
The truth is that nobody saw COVID-19 coming and it brought its numerous challenges. It came with challenges and opportunities for every sector. It was a huge opportunity and challenge for retail real estate. For retail, it was time to look into the future and inwards for retail; for real estate, it was opportunity to find ways to keep bringing people to the mall.

So, we needed to think out of the box. At a particular time, no flight was operating in the whole world apart from medical emergencies. That means, probably, nobody was going to any shopping mall or supermarket, but life was still going on in a different way. After the pandemic, there are people that have no reason to go their offices; we all realised that we could still worship God without going to churches and not everyone needed to be in the offices. That’s the same thing that happened to the retail market and a positive thing for the sector.

Then opportunities for the retail real estate is that you can’t buy everything online and we also realised that it is not only groceries that can anchor malls. What we are used to in Nigeria is for groceries and cinemas to anchor malls, but it is beyond that now.

Entertainment and children playgrounds, food, fashion, banks, hotels and lifestyles now drive malls. The malls need to be family-oriented. It also depends where the mall is located, the way it is built and designed.

There are a lot of things you need to put into consideration when building a mall, the most important is to create a convergence in a city centre and convenient environment for people.

What strategies are developers focusing to meet consumer demand and to adapt the changing retail real estate environment?
For us, our strategy has remained to provide retail in a manner that tenants can afford. Our major challenge is access to funding and most of the malls in Nigeria that we see today have to be funded both locally and with foreign inputs.

But with local currency volatility, it has been a huge challenge. What baffles me is the fact that we talk about Central Bank of Nigeria (CBN) intervention in the agriculture and entertainment, what I don’t understand is why CBN will intervene in agriculture, but those that will provide link between the farmers and consumers such as markets, supermarkets and retail malls, there is no CBN intervention for them.

There seem to be disconnection because those who provide platforms for consumers are exposed to foreign currency or local loan with high interest rate, which has led to fewer retail shops and high cost of fund in recent time, hence, consumers are at the mercy of products with no good quality at the open market as we are not creating or encouraging formal retail centres.

What we saw in the past years are foreigners bringing fund in to marshal this sector at single digit interest rate. That means the sector is lucrative because we have the population that the sector needs to thrive. What we need in Nigeria to grow the sector is to have access to funding so that more retail stores can be built.

The support provided to the entertainment industry by CBN will be erased by higher rents index in dollars charged in malls if there is no financial support at single interest rate to the retail property developers because the mall developers are borrowing at 30 per cent and would transfer the burden to tenants. Every time there is devaluation, there is rent increase.

What will happen is that there will be a time all retail real estate assets will be brought together to create Real Estate Investment Trusts (REITs) to provide more affordable fund, which is critical to the sector’s growth and sustenance. Every serious property developer must consider the capital market, but the access to the market is quite cumbersome and highly regulated, and you need to work to get there. It is not impossible for us.

Will cheaper funds turn around the sector and make it vibrant?
Absolutely, retail real estate is still very young in our industry, the biggest mall in Nigeria will be less than 30, 000 square metres (sqm), may be 22,000 sqm. Ideally, any mall that is above 10,000 sqm lettable areas, there is a struggle to bring tenants to occupy it. Only few malls in Nigeria have two anchor tenants. With our population, for instance, Lagos of about 20 million people does not have up to five proper malls. Johannesburg in South Africa, with less than six million people, have over 60 malls, and with that you will realise we have a long way to go.

After the second generation malls, the first mall built in Lekki, Lagos became a tourist attraction people visited from Ibadan and other parts of the city. The rich don’t go to the mall, they send people to the mall, it is the middle income and low-income that go there.

The sector is facing many challenges from e-commerce sector and changing customer behaviour. What are the other challenges? How resilient is the sector?
E-commerce has only increased our appetite for good offerings. In the past, supermarkets existed and owners offered what they have, but with advent of some foreign groceries retailers, our local providers have improved and currently, most malls offer 70 – 85 per cent local products. We need to take our minds away from imported items and start thinking inwards.

For me, it has been a positive thing and challenging. E-commerce has only led to an increase in numbers of people that go to the mall, especially the groceries and craving for organised and quality goods, as well as better online platforms. It is the consumer that is winning now and price war can only favour the consumer.

A lot of online shops are sophisticated and their clients are well-learned; shops are now doing delivery and a lot of online stores don’t own any shop or pay rent to anybody. They’re creating massive employment. They’re still buying from the physical shops.

However, the number going to the malls has not decreased despite the growth of the e-commerce. The consumers are getting better service, and producers are now challenged to provide quality and retain goodwill in the marketplace. It is a win-win for the consumers.

What has been the benefit of investors or property developers engaging in public- private partnership (PPP), especially on retail real estate development?
You will realise that land ownership is a very sentimental thing in Nigeria and other African countries. People are emotionally attached to their land and land was not part of our urban planning schemes.

For you to have access to the kind of land that would provide the kind of malls we build, you might need to engage the government and institutions who own the land. Buying these land may not be in your best interest.

Again, we are providing a social service due to the employment opportunities created by it. We are taking people, in the hundreds, off the streets in every location we build mall and they realise that things can be better provided.

For me, partnering with the government has so many advantages in areas where ease of doing business is working. In most of the places, where we had worked with great value such as Delta and Akwa Ibom States, the governments consciously want development and when they see serious developers, they don’t only encourage them, but ensure the bottlenecks are removed and provide infrastructure.

In some places, when you’re ready to develop, you will be unable to access approval for over six months or one year, with all sorts of bottlenecks. If you want to spend billions of naira, you don’t want to cut corners. In respect of that, there are places we had partnered the government, got land, but people still take us to court.

The government alone cannot provide infrastructure, there is a long way to go in terms of infrastructure. We as a company still look forward to providing roads, possibly providing airport as a private company. It is the private sector that can provide infrastructure such as roads and railway management.

Retail properties have been a major attraction of foreign direct investments to Nigeria and currently the third highest contributor to GDP at 16.1 per cent. What should the government do to ensure its sustainability?
Foreign direct investment has stopped because a lot people have brought in money; they’re unable to take their money out of the country. What’s happening now is that those who created such assets are just keeping the assets and waiting for things to get better or those leaving do so because our exchange rate is forced and the declining value of our currency. That has created challenged in terms of FDI. It has also created opportunity for us to look inwards, we have a lot of retail providers that are doing well and attracting investments into Nigeria, as well as patronage across the world and growing very fast. There is a huge improvement to the benefit of consumers. On FDI, the government should make it easier for investors to repatriate their money and the exchange rate should have some flexibility.

We need to be brave to remove the fuel subsidy, it is long overdue and once that is done, a lot of things will look as if the prices have gone up, but not necessarily. It’s going to be marginal. What will happen is the government will have more money to provide stability in dollars. Whatever gains we have in the current price will be real.

With dwindling consumers’ spending, fluctuating levels of vacancies and poor access to foreign exchange required for imports, what is your prediction for retail real estate in the country?
The future is very bright. Most of the malls, because of the funding used to build them, are indexed in dollars. This is not because the owners want to rip off people, but because of the type of funding for the provision of such assets.

Where the government should come in is in the provision of some form of refinancing for these assets to retain the workforce and ensure growth of the industry. Once it is done, it will continue to grow exponentially and there won’t be vacancy space in the malls.

Despite unstable power supply and restrictive import regulations, rent for this segment of the market remains stable. What are the attraction to investors and private developers?
Some of us are into making money, while some are creating wealth. I believe in creating wealth and for you to engage in wealth creation, you must believe in long-term investment.

What we are doing is creating all these assets; with intention of going to the capital market and collapsing all these into tradable instruments and everybody can be a player. That’s how the business can grow and stand the test of time.

For us, building malls is still an attraction, but not as much as we would have loved to build due to paucity of funds. We have malls in the pipeline, which are in tender for construction in Lagos. There is one in Surulere, called Super Mall, to be anchored by Market Square, and another in Festac.