Quest for ‘first mover advantage’ raising retail development momentum in 2nd tier cities
Activities in the country’s retail market remai upbeat with sustained interest in 2nd tier cities where investors’ quest to benefit from ‘first movers advantage’ is raising development momentum.
Investments in these relatively untapped markets by Resilient Africa in Delta (opened Q2) and Owerri (2015 Q4); African Capital Alliance in Onitsha (2016 Q2) and Grand Towers in Minna (2017 Q2) present strong prospects for the market in the near-future.
Another factor driving interest in these second tier cities is availability and relatively low land values as developers cannot get the right land size at the right price to build large-size malls in the first tier cities such as Lagos, Abuja and Port Harcourt.
“It is a big challenge to build a mall in Nigeria, specifically in Lagos, because of the unavailability of land in the city centre. Again, land value in Lagos is way too high to afford for retail development. If we have to build in Lagos at that high cost of land, the rents will be too high and that will pose a big challenge to prospective tenants”, Eddie Mc Donald, the COO of Resilient Africa, explained to BusinessDay
Broll Property Services notes in its second quarter report on real estate market that, in these new markets, investors are opting for smaller, more conservative projects of less than 10,000 square metres.
The report observed that during this period, there was growing uncertainty in the economy due to a slow start from the new administration, adding that the economy was under inflationary pressure due to Central Bank of Nigeria’s (CBN) restriction of the foreign exchange market, devaluation of the naira and fuel shortages.
It revealed that the 14,000 square metre Delta Mall was delivered within this period, increasing the retail offerings in 2nd tier cities, adding that in Q2, core markets rents were stable at $65 per square metre per month with 2nd tier markets ranging between $32- $45 per square metre per month.
Dolapo Omidire, a research analyst at Broll , observed that in the more established cities such as Lagos and Abuja, there was increasing competitive pressure on existing schemes with new mall offerings coming to market in the short to medium term, pointing out that, though the retail market has continued to function as a landlord’s market, with immediate demand outstripping supply, this trend was expected to change with the supply of new malls.
The retail market presents a very bright outlook and the Broll report anticipates that, in the medium to long term, there would be a significant increase in supply expected across the market, explaining that the completion of Owerri mall, expected over the next two quarters, will lead to an additional 9,000 square metres of retail space to help meet the demand and needs of retailers interested in submarkets.
“In Lagos, the completion of Festival Mall in Festac, Circle Mall in Lekki and Maryland Mall over the next two quarters will see an additional 29,000 sqm of retail space in the market”, Omidire said.
According to him, increasing development pipeline likely to encourage competition between landlords, which should result in softening of rents in the medium to long term, noting that investment into the retail sector continues to be driven by South African property funds and international private equity firms intent on expanding their investment footprint to Nigeria.
“Indigenous funds and investors like UPDC, Purple Capital and African Capital Alliance have also made recent investments in shopping centres of 10,000 – 15,000 square metres”, he said, hoping that more investment was expected from international and local investors as the Nigerian retail market matures.