Downturn forces retail investors to cut back projects size  

In response to the economic downturn in Nigeria, retail market investors are compelled to cut back on the size of their projects in order to limit their risks. These investors say they see a hazy outlook for this market, which depends largely on economic reforms as well as the lifting of foreign exchange restrictions.

 “Developers may have to push out dates, opt for phase developments or reduce the size of the development all together to limit risks,” says Broll Properties in its Q1 2016 report which also notes that cutting back on projects size will create a slowdown in the growth of the formal retail market across Nigeria, especially outside the prime locations in core cities of Lagos, Port Harcourt and Abuja.

Developers such as Resilient Africa which is still moving forward with development plans, is limiting its exposure to the market by reducing the size of its retail projects. Two of its planned projects in Owerri, which opened in February 2016, and Asaba were reduced from 13,000 square metres to 9,000 square metres.

Retailers are also taking some bashing such that while large grocers like Shoprite, the South African retail chain, have the ability to grow and source local produce, many of the smaller retailers may struggle to survive.

“Truworths, a fashion retailer, decided early in 2016 to close their two remaining stores in Enugu and Delta due to capital controls. They join other South African retailers such as Woolworths in deciding that the returns did not outweigh the risks and challenges faced in the country,” the report notes.

For the retail real estate sector in Nigeria, it has been an anti-climax in terms of growth and development. Between 2009 and 2015, the sector gained significant interest from local and international investors, including developers and retailers, who sought to support the development of modern shopping malls and centres similar to those in Europe, America, South Africa and other developed nations.

It attracted foreign direct investments estimated at $2 billion to $3billion from a zero base, which were deployed towards the development of about 20 shopping malls and centres in over 10 cities, including Lagos, Ibadan, Abuja, Port Harcourt, Kano, Warri, Ilorin, Enugu, amongst others.

Apart from accelerating the infrastructural development of the various states, activities within the sector have enhanced the socio-economic wellbeing of Nigerians through the generation of employment opportunities for skilled, semi-skilled and unskilled workers in excess of 1000 – 2000 jobs per retail centre.

However, in 2015, shortly after the inauguration of the present government, the sector started experiencing a huge setback in its growth and development due to some abrupt modifications to certain regulatory policies that stalled new development activities and stifled existing operations.

Federal Government’s new restrictive and prohibitive policies especially on foreign exchange and import activities dealt a heavy blow on the sector which depended largely on the US dollar, not only for the importation of wares, but also for development of retail space.

Though, the sector is still smarting from these unfavourable policies, plus the crippling impact of the global economic downturn, Broll sees hope, believing that Nigeria with a growing middle class and increasing urbanisation, still holds promise for investors and developers who are willing to take a long-term view on the country.