Retail market rents drop as vacancies soar
These are not the best of times for investors in the retail sector, as a combination of monetary, fiscal, and political policies hinders overall business activity, leading to increased vacancies in prime shopping malls and reduction in rents.
Mostly affected are retail developments in cities like Lagos, Abuja, Owerri, and Port Harcourt as well as upcoming malls in Asaba, Ogun and Aba. The Guardian learnt that the existing vacancy rate in Nigeria is about 20 per cent. For instance, the new Novare Lekki Mall in Lagos with 22,000 square metres of gross lettable area had about 95 occupancy rates during construction and as the mall set to open in few days time, it dipped to 75 per cent.
Facts show that the retail market has demonstrated a greater degree of stability, with almost no change in rents in Lagos’ main shopping centres. Interestingly, rents for formal retail properties remain steady, despite a rapidly deteriorating operating environment occassioned by tight forex regime, unstable power supply and restrictive import regulations.
However, there is evidence to suggest some shopping malls are offering existing tenants rent reductions as they struggle to cope with the tough trading conditions. While new developments are offering incentives such as short-term leases and mortgage finance to prospective tenants to acquire spaces.
Currently, retail real estate remains attractive to foreign investors, as evidenced by the recent change in ownership of Ikeja City Mall from a joint venture between Actis, RMB Westport and Paragon Holdings to the South African REIT Hyprop and Attacq, a real estate fund.
In its latest report – Commercial Market Outlook, Cluttons Nigeria noted that the growing popularity of this asset class in Lagos is reflective of the underlying supply-demand imbalance and investors’ longer term view on the market, despite the current challenges to growth.
In fact, developers are already rushing new schemes to the market, particularly at the smaller end of the scale, with Lagos seeing an increased development pipeline of smaller centres of under 5,000 square meters (sqm), with Admiralty Way, Lekki and its immediate environs having among the largest number of these new developments within the wider Lagos State area.
These smaller malls are quickly occupied by strong indigenous brands, as annual rents are perceived to be more affordable and hover in the USD 250 psm to USD 376 psm bracket.
On the prime retail front, rents are stable with The Palms Lekki leading as the most expensive space at USD 900 psm. Anticipated additions to Lagos’ retail offerings later this year include Oasis Centre and Maryland Mall, both in Ikeja. Ikeja City Mall is the second most expensive retail mall in Lagos, commanding average lease rates of USD 795 psm, followed by Maryland Mall at 780 psm. At less than half the price of these malls are the most affordable retail locations in Lagos; Adeniran Ogunsanya Mall and Apapa Mall, where rents stand at around USD 360 psm.
“In the short term, we expect retail rents to remain stable, particularly as tenants often sign leases with built-in escalation clauses. However, we anticipate a reduction in rents in the long run if the wider operating business environment does not improve, as retailers are expected to demand rent reductions should profits come under further pressure,” according to Erejuwa Gbadebo, CEO of Cluttons Nigeria.
“In fact, we have already noted a number of instances of retailers exiting the Nigerian market temporarily. Still, there is a general shortage of formal retail space in Lagos and with the ongoing growth in the city’s population; the future for the sector remains bright.
“In the more immediate term, with restrictions on the use of debit and credit cards for overseas purchases, there is a likelihood that the current market conditions will paradoxically spawn luxury retail malls, designed to cater to those unable to shop abroad because of limiting fiscal policies. This is something we will be monitoring closely,” she said.
The managing director, Bullnet, a real estate marketing firm, Bayo Akintoye told The Guardian that the existing vacancy rate in shopping is about 20 per cent. He attributed the decline occupancy on the downturn in the economy, especially the difficulty in procurement foreign exchange and import goods.
The Chairman of Novare Real Estate Africa, Prof. Fabian Ajogwu said, the firm was able to secure the 75 per cent occupancy rate because the project was driven by consumers’ needs.
He said: “ Right from inception, we have carried out research to ensure that we curtail the problem of high vacancy rate. Again the location of the mall within 12 estates in the neighbourhood played a significant role in securing such high percent occupancy rate.
“The mall is the primary retail node for the area, situated near to the Pan Atlantic University, Lagos Business School and Lakowe Lakes Golf and Country Estate.
Although, it is a fact that retail sector in facing a lot of challenges with respect to the low consumption rate and purchasing power but we are not in direct retailing business, Novare Lekki Mall is a development of the Novare Africa Property Funds, which has a mandate to develop and manage modern retail and commercial facilities across sub-Saharan Africa.
“We have successfully undertaken retail and commercial property developments in Nigeria and elsewhere in sub-Saharan Africa. Novare Lekki Mall incorporates the latest elements in modern shopping centre design and aims to provide visitors with state-of-the-art facilities in a user-friendly, safe and pleasant environment”, which is our major selling point.
“We have also set up leasing department to assist prospective customers on the remaining space, our rate are competitive and within reach because we recognize the impact of the prevailing micro economic challenges in the country. Our doors are open for such short term leases,” he added.