Despite the relative stability that the retail market enjoyed in Nigeria in the out-going year, landlords or owners of retail spaces/malls, pressured by the slowdown in economy and the restrictive policies of the government, are offering rent concessions and subsidised fit-out costs in order to retain existing tenants and attract new ones.
Like other segments of real estate, including residential and commercial office space, the retailmarket is adversely affectedby the fall in oil prices, naira devaluation and import restrictions by government.
As at the third and fourth quarters (Q3 and Q4) of 2015, rents in major malls in Lagos remained largely stable with The Palms going for $900 per square metre; Ikeja City Mall, $795 per square metre; Maryland Mall, $780 per square metre; Circle Mall, $750 per square metre; Festival Mall, $600 per square metre, Apapa Mall, $350 per square metre etc.
Analysts however say that the stability of these rents over the short to medium term will be largely dependent on how the nation’s economic story plays out, hinging their reason on the faltering economic growth and the likely impact of expected increase in retail space.
“The slowing pace of GDP growth, along with the devaluation of the naira and import restrictions, will eventually filter through to households in the form of reduced spending power, which may undermine the retail market”, says Faisal Durrani, Head of research at Cluttons Nigeria.
Durani reasons that this will create a very challenging operating environment, particularly for retailers new to Lagos. He further observes that “the scenario is unlikely to play out in quick succession, but the faltering growth outlook means it is a very real threat”.
The growth story of the retail market is seriously being undermined by a number of factors which Munachi Okoye, CEO, MCO Real Estate Limited, summarises as difficulties in securing large tracts of land with good title and also securing the required financing for the large capital outlay required to build out such large developments.
EddieMcDonald, Resilient Africa’s Chief Operating Officer, agrees. McDonald says developers are constrained by land availability in the big cities, especially in Lagos.
“It is a big challenge to build a mall in Nigeria, especially in Lagos, because of the unavailability of land in the city centre. Again, land value in Lagos is way too high to afford for retail development”, he emphasied.
Mc Donald, whose company is developing the Owerri Mall in Imo State, noted that “Lagos can accommodate 20 malls but the problem is in finding
the land. We cannot get the right land size at the right price to build the kind of mall we have in Owerri and, even where you find one, the price will be too high”.
Okoye explains that these challenges have led to increased interest in opportunities for expansion in secondary city developments, citing examples of
African Capital Alliance’s 12,100 square metre Onitsha Mall, currently undergoing development, and Persianas Group’s 10,000 square metre retail developments in Ilorin and the 21,000 square metre development in Ibadan.
“Further afield is the Aba Mega Mall, a highly ambitious shopping and logistics hub of 100,000 square metre leasable space on 28 hectares, which was recently opened in Aba, Abia State”, he added.
Durani fears that with these secondary retail schemes due to be completed in the short to medium term, prime retail rents in the big malls will be undermined, particularly if consumer demand falters.
