Prime residential rents and sales prices in Nairobi declined in the first half of 2019 amid a continued oversupply of high-end developments in some locations. With the on-going supply glut of retail space, shopping malls in Kenya are posting huge losses. This has compelled landlords to reduce rental charges in a move to lure new tenants and retain existing ones.
Besides, the country’s economic status experienced a credit crunch that affected money circulation and spending power, thus hitting the sector. A report by Knight Frank Market update showed that prime residential prices fell by 1.8 per cent in the first half of 2019 and this increased the annualised decline to 6.7 per cent in the year to June. According to Mauritius-based Grit Real Estate Income Group, Naivasha-based Buffalo Mall reported total revenues of Sh55.4 million in the year ended in June, a decline from Sh106.9 million in the previous year. This represented a 48 per cent drop. However, the mall posted a net profit of Sh33 million reversing a net loss of about Sh600 million a year earlier.
The Mauritius-based Multinational Grit Real Estate Income Group had acquired a 50 per cent stake of Buffalo Mall in 2016 for Sh450 million. The June 2019 assessment by consultant firm Knight Frank placed the shopping mall’s value at Sh750.1 million. Retail Chain Tuskys is among the tenants at the 6,121 square metre mall, which has 37 other commercial renters and a vacancy rate of 1.7 per cent. Occupancy levels in established malls remained high at 90 per cent in the first half of 2019 while new rental developments recorded occupancy levels of between 45 per cent and 55 per cent.
However, tough economic conditions have left most consumers with less disposable incomes, directly impacting on retailers. This has put landlords under considerable pressure to provide concessions to retain existing occupiers and attract new tenants. Grit, through its valuation and advisory services provider Broll said that many of the tenants have been offered a rental reduction to ease the rent burden. The rent reduction trend has been witnessed across the country and is expected to continue. Another trend that was noted in the period where new tenants opted to take up space within extensions in established malls to tap into the existing clientele rather than opening shops in new retail centres.
According to Grit, the estimated formal retail supply in Nairobi and Mombasa has grown rapidly in the past few years. Currently, it stands at 630,000 and 80,000 square metres respectively. The recent surge in retail supply has resulted in the slow uptake of new retail space and as well as stagnating the prime rents. With an increasingly competitive market, landlords are offering incentives in a bid to attract new tenants into recently completed malls. The increased supply of retail space has led to extreme competition for tenants in Nairobi and other major towns. Overall, tenants have enjoyed more favourable lease terms such as flexible deposits and lower rents in a bid to boost occupancy levels for prime spaces in shopping malls.