When experts gathered in Lagos recently for a retail roundtable hosted by Broll Property Services, the point of focus was the future of the retail segment of the Nigerian real estate sector in a very challenging business environment such as Nigeria has at the moment.
The retail industry in this country has seen phenomenal growth which has been hampered recently by the challenges in the economy. But experts insist that, this notwithstanding, there is still future for the market especially in the second tier cities where Eddie Macdonald, CEO, Resilient Africa, sees the future in building smaller malls and cultivating local tenants.
Malls in Nigeria are Western-styled markets which require large capital outlay and big-ticket retailers which, in Nigeria’s present economic circumstance, appears to be unsustainable going forward.
Amidst mounting concerns, Broll Nigeria, a member of the Broll Group—the largest pan-Africa multi-disciplinary real estate services provider, gathered retailers, developers, financiers etc who are all stakeholders in this industry to discuss what becomes of the ‘Retail Industry: 10 Years from Now’.
The company, whose African footprint cuts across such countries like Ghana, Kenya, Malawi, Mauritius, Namibia, Rwanda and South Africa, is well involved in retail business and, according to Bolaji Edu, CEO, Broll Nigeria, “we are involved in the leasing or management of most modern retail space in the country; at Broll, we see this as a testament to the quality of our outstanding service and our unrivalled ability to outperform”.
With 0.36 percent economic growth in June 2016 (the lowest in 6 years); 0.8 percent GDP growth forecast for 2016 by the World Bank, the removal of CBN peg rate of N197/US$1; 40 percent devaluation of the naira after free-float foreign exchange policy, and the naira now trading at N281.82/US$1; inflation rising to 15.60 percent in June from 12.80 percent in March, concerns about the economy can’t be any higher at any time than now.
The retail industry is taking a bashing, perhaps, more than any other sector from this. “As at February 2015, expectation was high on the growth of the retail industry in this country”, recalls Alvin Nadas, COO, Smartmark Limited, a retail chain that entered Nigerian market with an ambitious plan of opening 100 stores within 12 months. In less than two years, Nadas is lamenting that “retailers in the country are now bothering themselves more with survival strategies than investment and expansion”.
Macdonald noted that there was an over-supply of retail space at the moment. “There are 151,500 square metres total stock in secondary markets, representing 51 percent of total stock in Nigeria. Average gross leasable area (GLA) for second tiers mall is 12,625 square metres while the current tenant take up is only around 7,000 to 8,000 square metres”, leaving the market with a void of almost 50 percent.
The roundtable agreed that outlook for the industry was bright but challenges remain. Apart from restricted access to foreign exchange which is critical, there are also problems with getting well located land at affordable prices, building costs, landlords’ insistence on dollar rents, etc.
Edu was however, of the view that despite these challenges, Nigeria still holds promise for investors who are willing to take a long-term approach to investments and premised his conviction on Nigeria’s strong demographics which shows an emerging middle class with strong buying power. He pointed out that “the outlook for retail in this country is largely dependent on economic reforms as well as the lifting of foreign exchange restrictions”.
From a developer’s perspective, Funke Okubadejo, Director at Actis, advised that the structure of the economy needed to be diversified, noting that government relied heavily on oil revenue and has not tapped into other productive sectors of the economy such as retail. “The retail sector presents a viable opportunity for youth employment and it behoves on retailers to bring this information to key decision makers in government”, she advised further.
