Respite for retailers as mall owners offer short leases, subdivide large spaces

Amidst the biting impact of economic recession, tenants in retail malls are in for respite as owners of those malls are responding to the hash economic environment by offering shorter leases to tenants who are unwilling to make long term commitments as a hedge against the uncertainty in the market.

These measures, which are largely aimed to reduce high vacancy rates and drive occupancy in the malls, have also seen some landlords especially those of recently delivered malls where there is slower take up rates, have also seen landlords willing to subdivide larger boxes that would otherwise be occupied by one tenant for use by multiple tenants.

Broll Nigeria adds in its recent third quarter report on commercial real estate that with the floating exchange rate regime in full effect and the fact that rents are still charged in dollars, landlords have also been willing to peg the exchange rates at which rents are paid.

“This has brought some respite to tenants, allowing for certainty in their budgeting and planning. It is important to note that these considerations on the part of the landlords are not market practice and are extended, subject to negotiations on a cases by case basis”, says Nnenna Alintah, a researcher at Broll.

Alintah notes that all through the first three quarters of the year, most macro-economic indicators continued to deteriorate as the economy grappled with the recession which was confirmed by the -2.06 percent contraction recorded for the second quarter of the year, adding, “the consumer price index rose from 15.6 percent in May to 17.6 percent in August, which represented the highest of inflation recorded since 2005”.

The continued ban of 41 items from the interbank market has increased the reliance on the more expensive rate offered on the parallel market and, according to Alintah, this fueled soaring prices in the economy and also a slowdown in business activity.

Retailers have continued to face challenges given the tight market and regulatory environment and increased pressure from the unfavorable economic conditions have continued to bear down on recently delivered malls with consideration to the significant increase in supply and the shallow tenant pool across the market.

“Lack of access to FX on the interbank market and the continuous depreciation of the Naira on the parallel market have led to higher costs for retailers looking to fit out their stores, restock and carry out other operations”, says Obiajulu Uzoigwe of Broll’s retail leasing unit.

Uzoigwe notes that the third of the year saw the completion of Novare Lekki Mall which is currently the largest mall in Lagos and is anchored by Shoprite and Game, adding that the 22,000 square metre mall opened along the Lagos-Epe expressway further consolidates the status of this axis as the key growth hub for the retail sector.

Both retailers and landlords have a bitter cola to chew as the outlook for this sector remains challenging over the next 3 to 6 months given the prevailing market conditions and the tight regulatory framework surrounding the foreign exchange market.

“With the shallow tenant pool in the retail market as well as the waning interest from retailers”, Alintah says take up rates are expected to remain low given the relative over supply in the market.

Some tenants in existing malls will face pressure paying their rental obligations and will look to the landlord for short term concessions.

Additionally, landlords are expected to face more pressure as a result of soaring inflation in the economy and given that prices for goods and services have continued to follow an upward trajectory, the cost for goods and labour required for adequate maintenance of malls is expected to follow suit.

CHUKA UROKO