Kenya’s Mall Owners Struggle as Market Tumbles

Rents in Kenya’s prime shopping malls fell 5.9 per cent in the first half of 2019 as the country’s retail sector glided deeper into the centre of an economic tightening storm, according to Knight Frank Kenya.

Charges for high-end shops declined to about Sh484 for every square foot per month in the first six months of the year, with service charges across shopping malls ranging between Sh45 and Sh60 for every square foot per month.

The decline, the property agency said, was mainly credited to the sluggish economic situation, and a reduced amount of money in circulation – resulting in reduced consumer spending.

“Additionally, oversupply of retail space in certain locations has resulted in pressure on landlords to provide concessions and other incentives to attract new or retain existing tenants,” Knight Frank said in its H1 2019 market update.

During the review period, occupancy levels for new shopping malls stood at between 45 per cent and 55 per cent, piling enormous financial pressure on investors.

The low occupancy levels are attributed to the current oversupply of new retail spaces and the ongoing expansion of existing malls.

“Current and new tenants are opting to move to the new phases in the established malls to tap into the existing clientele rather than open shop in new retail centres,” Knight Frank said.

According to the report, the Kenyan retail property sector is now a renters’ market and tenants are increasingly demanding rent reductions and incentives such as the inclusion of utilities into the bargain. 

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As a result, many investors who recently built retail properties betting that demand and rents would keep climbing are now in distress. For example, at least three malls in Nairobi are currently in breach of their loan covenants as their owners contend with high vacancies.

Although most shopping malls in Kenya are private entities and not obligated to disclose their financial performance, a recent report of Buffalo Mall painted a grim picture of the sector.

According to Mauritius-based Grit Real Estate Income Group, which holds a 50 per cent stake in the facility, Buffalo Mall earned Sh55.4 million in the year ended June 2019 down from Sh106.9 million a year earlier – representing a 48 per cent drop.

Last year, the London Stock Exchange-listed company announced its intention to sell its entire stake in the mall. Recently, the firm disclosed that it had received a non-binding buyout offer from an unnamed prospective buyer.

The Two Rivers Mall, partly owned by Centum Investments, is also reeling under mounting losses. The mall reported a net loss of Sh3.4 billion in the year ended March 2019 – down from a profit of Sh915.8 million a year earlier.

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