• Thursday, June 20, 2024
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Why stability in formal retail may take longer to return

Consumers raise concerns as Plateau supermarkets operate without price tags

Stability in the Nigerian retail business may, contrary to expectations, take a longer time to return for reasons bordering on reduced anchor tenants footprints, dearth of pipeline projects and fallen rents.

This, surprisingly, is happening in an industry that was, once, the darling of the commercial real estate space, where optimistic private equity investors took high-risk positions.

The largest anchor tenants in Nigeria’s formal retail centres include Shoprite, Game and the large cinema chain groups. As you may already know, Shoprite disposed of their Nigeria operations to Persianas linked Ketron Investment Limited.

Ketron is expected to review their occupancy strategy and exit locations that have performed poorly to manage costs.

In The Palms Lekki, Lagos’ first formal mall and third largest with 20,000sqm of retail space, for instance, the Genesis Deluxe Cinema, a sub-anchor tenant, has not been operational for over four months.

Furthermore, large anchor type spaces in excess of 500sqm are being used in an informal department store format while smaller retailers including Celio and Puma have also reduced their mall footprint, transitioning from their current line shops to slightly smaller spaces.

Read also: Developer launches Heritage Apartments, others in Lagos

Dolapo Omidire, Founder/CEO, Estate Intel, told BusinessDay that, in their year-end 2020 report, Game, which is a part of the larger Massmart Group, reported that the majority of Massmart’s realised and unrealised foreign exchange loss was primarily a result of currency weakness not only in, but also in Mozambique and Zambia.

“As a result, the group will review its store portfolio outside the South African Development Community (SADC) country region to achieve a ‘coherent portfolio’ focus that will release intellectual, manufactured and financial capital resources that will be reinvested. In this case, a review may also indicate potential disposal and exit,” Omidire reasoned.

Hubmart has also made the recent decision to exit Lennox Mall, which was their first and only outlet located within a formal retail space, and not in a stand-alone facility. They spent a little over 3 years here as anchor tenant.

Obviously, the largest investors in the commercial real estate space are slowing down or increasingly taking an income approach, opting to invest in existing de-risked assets in place of green-field development projects.

For instance, Actis which co-pioneered retail space development in Nigeria, has sent out the mandate for Broll to dispose of land where they planned to build Twin Lakes Mall. An offer to re-acquire Ikeja City Mall followed shortly after.

Average rents in core markets including Lagos, were US$50 – US$80/m²/month in 2016, according to Broll Nigeria. At the time of the new sale announcement, Ikeja City Mall, the city’s prime retail centre had a weighted average rent of $42/m²/month. Using the lower limit, this represents a 16 percent decline in rentals over a 6 year period.

Rentals in second tier cities such as Delta, Asaba and Owerri, were also previously reported to be c. $35-$50/sqm/month in 2016. However, Resilient’s retail portfolio shows that weighted average rents in these cities are currently averaging out at $20/sqm/month, representing a worse decline of 43 percent.