Concerns are mounting among owners of retail malls as local retailers, squeezed by rising inflation, high exchange rate and a general downturn in the economy, are now sidestepping such facilities for stand-alone houses where rents are lower and more convenient to pay.
In the last six to 12 months, despite what experts have described as fragile post-COVID recovery, structured or formal retail malls have seen an increase in vacancy rate as some of these retailers are leaving the malls for smaller and less formal outlets.
Though no official reason was given for its action, Novare Real Estate Nigeria Limited (NREN), an institutional investor and developer, has put up its Lekki Mall, Apo Mall Abuja, Novare Central Mall, and Gateway Mall Abuja for sale.
Close market watchers, however, speculate that the action of this foremost mall developer who took the retail market by storm when the market boomed, is not unconnected with the challenges in the economy and the dwindling fortunes that segment of the real estate sector seem to be undergoing.
Most of the formalized malls charge dollar-denominated rents or their naira equivalent which retailers, including foreign ones, are finding increasingly difficult to pay due to the free fall of the naira at the foreign exchange market.
“Some of us have had to shut down shops, citing high exchange rates and low patronage. Before now, when rent was $600 per square metre in the first-tier malls, the naira equivalent was N216,000 at N360/$. That was then. Today, with the naira exchanging for almost N1000/$, some of the local retailers are either unwilling or unable to pay,” Peace Nnabuife, a local retailer told BusinessDay.
According to her, the situation at the malls poses challenges for both the landlord (mall owner) and the tenant (retailer), but in unequal proportions, explaining that whereas the retailer has the option to move into an alternative outlet, the landlord is not as lucky.
Many of the landlords have had to offer a range of concessions including a rent-free period of up to three months, a flexible payment system—from annual to quarterly, assistance in fit-out charges, etc., but their best is not good enough for the tenants who have continued to demand more concessions.
More than other segments of the real estate market, retail was heavily impacted by the recession and the Covid-19 pandemic, and unlike the residential and commercial real estate where rents are already bottoming out with hope to stabilize and rise, Gbenga Olaniyan, CEO, Estate Links, says rents will only start rising again at retail malls when they bottom out at where retailer’s naira can afford them.
“Even the foreign retailers have their challenges because they have to see buyers to make sales and Nigerians are getting clever with shopping”, he notes.
The present economic situation in the country has reduced consumer purchasing power drastically to a point where most families that used to go for weekend shopping and leisure are only struggling to just feed and get well.
But Michael Ch’udi Ejekam, CEO, Arteos, advises that landlords and other investors in retail should have patience and a long-term view of the market to be successful, noting that the economy is still in early recovery from a downturn.
The retail market in Nigeria had witnessed what could be described as a retail revolution, gaining significant interest from local and international investors, especially those from South Africa.
From a zero base, the market attracted foreign direct investments estimated at $3 billion deployed to developing shopping malls in both 1st and 2nd tier cities including Lagos, Ibadan, Abuja, Port Harcourt, Kano, Warri, Ilorin, Enugu, Owerri, Onitsha, Kaduna, etc.
But all the gains and success stories in the market have been undermined by the downturn in the economy. From 2015, when the economy slid into recession till date, the market has been experiencing huge setbacks with existing malls struggling through high vacancy rates, low tenant pools and reduced footfall.