Formal retail still tenants market as landlords struggle to drive up occupancy

Post recession formal retail in Nigeria is still tenants market as consumer purchasing power remains crimped. Declining footfalls at malls has put many retailers in dire straits, forcing many of them to close short.

Landlords, especially those in secondary market locations, are  under intense pressure to drive up occupancies at malls many of which are largely unoccupied.

The situation is so frustrating that, in addition to the existing concessions to drive take-up occupancies, landlords are considering even more flexible lease terms such as annual and hybrid Naira/Dollar leases

But this, according to a Broll Property Services Retail Market Viewpoint for Q3 2018,  is yet to become an established practice in the market as it is more on a case-by-case basis.

Asking rents within the quarter have dropped in dollar terms.  “Average asking rents for malls in secondary locations are lower in the quarter under review in dollar terms”, notes Nnenna Alintah, a researcher and Head, Occupancy Services at Broll.

She pointed out that average asking rents ranged fromUS$15 per square metre per month – US$25 per square metre per month for spaces between 50 square metre – 200 square metre down from US$20 per square metre per month – US$30 per square metre per month in the previous quarter.

Outlook for this segment of the market is not entirely bright. With the existing macroeconomic conditions and the upcoming elections in Nigeria, current market dynamics are expected to persist.

This means that headline inflation is not likely to drop, nor will exchange improve in favour of the local currency which is a major challenge for the retail market where many of the wares are imported.

“The large gap between occupational costs and effective demand, constrained purchasing power and oversupply of mall space reinforce this outlook. With these market realities there is no capacity and prospect for rental growth in the near to medium term”, Alintah posited.

Very few malls(+-10,000 square metres) are currently in the pipeline in the core and secondary markets, with the focus being on smaller design concepts that are specifically tailored to the demographics within the mall’s catchment area.

In the core markets, especially in Abuja and Lagos, activities and trends remained unchanged. These  markets remain the first point of entry for new brands coming into the Nigerian formal retail space. Lagos, for instance, accounts for over 70 percent of investment in formal retail so far.

Abuja is yet to see the volume of investment in retail that Lagos has received. A major formal retail in the federal capital city is the Jabi Lake Mall Abuja, a joint venture project by Actis, a leading private equity investor in growth markets, and Duval Limited. It opened for business in November 2015 and has created hundreds of employment and skills acquisition opportunities for Nigerians.

In addition to household names such as Shoprite, Game and Silverbird Cinemas, the mall also harbours   renowned retailers including sports giant – Nike, Levis, Vlisco, Woodin and T.M Lewin, making it a top retail and leisure destination for residents of  Abuja.

“The mall was developed to tap into the buying power of Abuja’s estimated 68,000 households with annual expenditure of over $150,000 per household. With a rapidly growing population of 2.2 million, Abuja is a very strong market comprising A and B level consumers which underpins the residents’ potential buying power”, Michael Ch’udi Ejekam, a former director, real estate at Actis, told BusinessDay.

But whether it is in Abuja or Lagos, landlords are really at ease.  In a bid to remain competitive, they are incorporating family-friendly offerings, cinemas and arcades to capture the changing consumer preferences. Additionally, some landlords are bringing in a number of international brands on their own balance sheets.

Average asking rents for spaces as small as 50 square metres – 200 square metres and they  range between $30 per square per month – $70 per square per month. Transactions ultimately are conducted on a case-by-case basis and achievable rents could fall well below this average.

“Demand enquiries have remained constant in Q3:2018, with space requirements focused on 100 square metres or lower. As in the first half of 2018, demand was predominantly driven by local retailers in the fashion and food and beverage categories”, Alintah pointed out.

She noted that retailers were re-examining their strategy in the market such that relocations from formal malls to surrounding high-street locations have become evident with some retailers opting to locate in close proximity to malls in order to benefit from passer-by traffic whilst incurring reduced occupancy costs.

Furthermore, she added, retailers that had initially adopted a strategy to locate exclusively in stand-alone locations are now branching out into malls. This could be attributed to internal strategies to curb competition and to benefit from parking as well as other amenities provided within malls.

CHUKA UROKO