Formal retail market in Nigeria continued its struggle into the first half of 2019 when, unlike the prime office space market where 33,000 square metres space was supplied, no single project was delivered in the first half of 2019.
After what was seen as retail revolution that ended in 2015 because of government unfavourable economic policies, formal retail in Nigeria has been on the throes of an ailing and fragile economy where disposable income and consumer purchasing power have dropped considerably.
Though there are some projects that are nearing completion in the core and secondary markets, the sizes are such that landlords don’t see enough capacities in them to disrupt current price levels.
“These projects measure below 10,000 square metres,” notes Amaka Ajaegbu, researcher at Broll Property Services, in the company’s recent Retail Market Viewpoint on H1.2019.
The report listed the incoming projects to include The Landmark Retail Boulevard (approximately 6,000 )square metres and the Simbiat Ikeja Mall in Lagos state (4,900 square metres)7,The Oshogbo Mall in Osun state (roughly5,000 square metres) and a retail project in Port Harcourt of approximately 9,000 square metres.
Additionally, a number of developers, both local and foreign, in the formal and informal sectors, are currently conceptualizing a few developments in both the core and secondary markets.
Ajaegbu pointed out that the international developers, who are relatively new to the market, are leaning towards the more traditional formal retail designs (10,000 square metres +)while the local developers are looking at smaller projects to suit the demographic locations in which they will operate.
According to her, in the period under review, landlords highlighted certain factors that existing occupiers now require to enhance the usability of their current space such as improved amenities, additional seating areas within the mall, free onsite parking to improve dwell time, early lease terminations and service charge reconciliations.
“Moreover, possibly the most important factor that has been highlighted by existing tenants is a reduction in occupied box sizes. Medium to large box sizes have proven difficult to lease in both core and secondary retail markets as prospective tenants are unable to justify the financial costs attributed to acquiring these premises which range from 100 square metres to 1,000 square metres.
“Overall, vacancy rates average 20 percent across core and secondary market locations, although the very successful malls are operating at below 2 percent vacancy rate. Rents have remained largely unchanged in H1:2019 in secondary market locations, however, there have been notable revisions upwards in rental values in the core market”, she disclosed.
Asking rentals in the successful malls in Lagos are above $100 per square metres per month for 50 square metres to 250 square metres boxes; while average asking rentals in other core market locations generally range from $40 per square metres per month to $75 per square metres per month, up from $30 per square metres per month to $70 per square metres per month recorded in H2:2018.
The report says that rentals are flat in secondary market locations at $15 per square metre per month to $25 per square metre per month, adding that landlords in the core market retail malls are less inclined to offer discounted rentals, as was once the case during the economic recession, especially as vacancy rates have declined in certain malls.
On the demand side, the report notes that there is notable tenant activity in the formal retail space. Enquiries have increased moderately in key malls within the core and secondary markets. A number of transactions have been concluded in the food and beverage, fashion and accessories as well as beauty and personal care categories. But majority of these transactions have remained under 100 square metres in size.
“Some existing tenants that have struggled to meet financial obligations in the past have been exiting malls as their lease tenures expire. This is despite financial concessions and payment plans offered by some landlords,” the report says, adding, “international brand interest in the Nigerian retail space has slowed down to a certain degree as strong enquiries in the formal retail market have not translated into actual transactions.”
Outlook for this market is bright and promising. It is expected that local retailers will drive demand in the coming months as international brands look to entrench themselves in the market through experienced franchise operators while about 25,000 square metres of retail stock is set to enter the market by year end. This is in addition to the existing 350, 000 square metres already existing in the core and secondary market locations.
CHUKA UROKO
