Malls Post Huge Losses as Rents Fall, Tenants Quit

Kenyan shopping malls are experiencing significant losses due to an oversupply of retail space, forcing landlords to reduce rents to retain current tenants and attract new ones.

While most of the local shopping malls are privately held entities that are not obligated to announce their income statements, the latest financial report of Naivasha-based Buffalo Mall has offered a quick glimpse of the industry.

According to Mauritius-based Grit Real Estate Income Group, the mall reported total revenues of Sh55.4 million in the year ended June down from Sh106.9 million a year earlier – representing a 48 per cent drop.

However, although this would naturally lead to lower profits or bigger losses, the mall posted a net profit of Sh33 million during the period under review, reversing a net loss of about Sh600 million a year earlier.

This performance was driven by a higher valuation of the mall, which resulted in unrealised fair value gains. The June 2019 assessment by consultant firm Knight Frank placed the shopping mall’s value at Sh750.1 million.

Grit Real Estate, which is listed on the London Stock Exchange, holds a 50 per cent stake in Buffalo Mall.

“The recent surge in retail supply has resulted in a slower uptake of new retail space as well stagnating prime rents, culminating in an increasingly competitive market which has prompted some landlords to offer incentives in a bid to attract tenants into recently completed centres,” Grit Real Estate said in a review of the market last year.

Grit is now planning to sell its stake in Buffalo Mall. The company says it has already received a non-binding buyout offer from unnamed prospective purchasers. 

Nairobi-based Two Rivers Mall is also reeling under mounting losses. The mall, which is partly owned by NSE-listed Centum Investments, reported a net loss of Sh3.4 billion in the year ended March – down from a profit of Sh915.8 million a year earlier. The mall is 80 per cent occupied.

Increased supply of retail space in Nairobi and other major towns has led to extreme competition for tenants many of whom are downsizing owing to the prevailing tough business environment and digitization of the marketplace.

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The trend has brought good tidings to tenants who are now enjoying lower rents and more favourable lease terms such as flexible deposits and free parking for shoppers visiting specific premises among others.

This is expected to continue as more properties are completed. Malls in Nairobi, where average monthly rents range between Sh3,380 and Sh5,000 per square metre, are expected to face enormous pressure in the coming months as more properties open to the public. 

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