Investors show confidence in economy, to deliver 26,800sqm retail space in Q4: 2022
In what is clearly a demonstration of resilience and confidence in Nigeria’s struggling economy, investors in the retail segment of the real estate sector have continued to invest in space supply.
Pipeline projects in the sector is estimated at 26,800 square metres and these are expected to be delivered in the last quarter of this year. However, those projects are on a smaller scale with smaller footprints and an average of 5,360 square metres.
It is expected that demand for traditional retail malls, especially high-performance malls such as Ikeja City Mall, Delta Mall and Jabi Lake Mall are to hold firm. On the other hand, leasing activity is expected to be driven by renewals, although this could change with any market vacancy.
But continued deterioration in economic conditions could impede retailer activity in the coming months. The downside risk to this may be the challenges to meeting rental obligations and possibly increased vacancies.
A major development coming up in this sub-market is that, following two years of forced closure brought on by the aftermath of the EndSars protests, Circle Mall is expected to be delivered this year.
The Mall is scheduled to come back in full swing, with many retailers getting set to begin fit out in this quarter. All things being equal, the mall will be delivered in October 2022.
Rents are expected to maintain their trajectory if current market dynamics subsists – low vacancies and limited pipeline delivery. However, with economic conditions worsening, landlords may adopt more tenant-friendly policies to retain tenants at their malls.
A recent report by Broll Property Services, tagged Retail Market Viewpoint for H1: 2022, which gives these hints, notes that the existing pipeline is mainly driven by domestic investment in growth corridors and high-density inner cities.
This simply mirrors the parlous state of the economy and sharply contrasts with earlier investments and development of formal retail malls dominated by foreign investors, especially South Africans, who invested in large-size malls in first tier cities notably Lagos and Abuja.
Despite the enormous challenges in the economy as reflected in hyper inflation, high energy costs, dwindling individual and household income, formal retail market activity held steady in the first half of 2022, according to the Broll Properties report.
“The current market realities, with emphasis on the demand side, continue to differ from expectations of a down market,” Bolaji Eduh, Broll’s CEO, confirmed, adding, “we observed market consolidation with most malls operating above 90 percent occupancy.”
The report noted that, in H1:2022, the market saw a net absorption rate of 70 percent with many malls filling up vacancies as they become available, especially in high-performance malls in core and secondary market locations.
“Vacancy levels dropped in the period, while collections to billing rates and foot traffic improved. Asking rental rates remained unchanged in the period. However, achieved rentals recovered in contrast. Pipeline developments remain muted and the bulk of construction activity sits at the helm of local investments,” Eduh noted.
A major feature of modern malls development, according to the report, is that the designs tend to be on a smaller scale, with supermarket anchors and smaller line shops positioned in high-density inner cities and growth corridors.
As at the first half of the year, leasing activity remained relatively unchanged with a slight decline of 0.5 percent in new leases signed to 7,611 square metres, down from 7,650 square metres in H2:2021.
“However, understanding the seasonal nature of this market, where the highest leasing activity is typically recorded in the year’s final quarter, market activity in H1:2022 performed very well in comparison,” the report said.
Noteworthy, according to the report, is that food and beverage, fashion and fashion accessories, furniture and home goods, and hospitality and leisure (specifically restaurants and bars) were the highest drivers of demand activity within the period under review.
These market subsectors accounted for 65 percent of new leases signed. The furniture and home goods category recorded the highest demand activity in terms of the size of transactions while fashion had the highest frequency of transactions in the period.
“What we have seen is that local retail brands continue to dominate demand activity in the formal retail space. The Krispy Kreme brand, however, made its Abuja debut in the first half of this year and has three more stores in the city. Supermarket operators such as Market Square have highlighted very bullish sentiments on the market as reflected in their expansion policy in the market,” Eduh explained.
He added that strong renewal rates were recorded in the period, pointing out, however, that there were some notable exits and downsizing at these malls, with the core market accounting for the most exits/downsizing in the first half of the year.