Shopping centre rents drop 9.4%, as disposable income drops
As recession in Nigeria continues to ravage the country’s fragile economy with debilitating impact on everybody and everything, a sector of the economy that has received the worst bashing is retail where all, including landlords, retailers and consumers, have been squeezed.
Landlords, who are retail space providers, are at the receiving end because eroded household income has impacted the ability of retailers to remain profitable, which, in turn, has driven rents downward, especially at the prime shopping centres.
Most notably, Ikeja City Mall and Circle Mall have recorded declining rents this year at 9.4 percent and 1.9 percent, respectively, with rents in both malls now standing at $720 per square metre, down from $750/sqm and $850/sqm. However, The Palms Mall, whose rent stands at $900/sqm, has not seen much change in rents over the last 12 months.
“In particular, retailers have been hit by declining footfall (retailer-traffic), which has fallen by as much as 10 percent in recent months, with turnover declining by an even sharper amount,” Erejuwa Gbadebo, CEO, Cluttons Nigeria, says in a recent report.
This development has spurred rent concession requests from retailers, with some landlords eager to honour such requests in order to sustain occupancy levels. Aside from falling footfall and declining profit levels, retailers are, of course, faced with restocking challenges due to the fluctuating naira rates, the capital controls introduced by the Central Bank of Nigeria (CBN) and the inability to source adequate foreign exchange to pay for imports.
Bismarck Rewane, CEO, Financial Derivatives Company (FDC), says inventory levels in domestic retail are thinning out as dollar remains a scarce commodity, predicting that typical inventory build up around Christmas season may be eluded this year as demand has remained relatively flat on account of consumers’ shrinking purchasing power.
BusinessDay had, in an earlier report, pointed out rising vacancy rate in most of the retail outlets in Lagos, citing the relatively new Apapa Mall, which has recorded about 30 percent vacancy rate. A visit to the mall a couple of weeks ago, it was discovered that out of about 34 available shop spaces on the ground and first floors of the mall, there were about 10 vacant spaces, representing 30 percent of the available leasable spaces.
“There isn’t much business here throughout the year, and many retailers are finding it difficult to meet their target, pay salary and break even. This is more pronounced with businesses that deal on luxury goods, most of them have moved out of the mall to areas like Surulere and Festac where they hope to meet their target,” an attendant at the mall said.
A triple unfavourable incidents, according to Munachi Okoye, CEO, MCO Real Estate, has befallen retailers, which include reduced consumer spending, a falling naira leading to inflationary pressures on imported consumer goods, and supply constraints in sourcing foreign exchange to buy the goods to stock shelves.
All these have negatively impacted retailers’ turnover with a knock-on effect on their ability to pay rents, and as rents are often dollar-denominated, it means they are also rising in naira terms, leading to creeping vacancy rates and the slow up-take of space in new developments.
However, in spite of all these challenges, the retail sector in Nigeria, given the country’s strong demographics, has very positive outlook and, according to Gbadebo, in the medium to long term, this outlook will remain strong, especially with the new additions to the retail space following the completion of the Maryland Mall in July and the Novare Mall in late August, which brought 6,500sqm and 22,000sqm, respectively, to the market.
“With just eight shopping centres to service Lagos’ population of about 20 million, the retail mall sector remains vastly underserved. Lagos is yet to see the birth of mega malls in excess of 100,000sqm; however, this should change in the long term with plans for the new shopping mall on Eko Atlantic City gradually progressing,” she hoped.