× Digital News Videos Health & Science Opinion Education Columnists Cartoons Lifestyle Moi Cabinets Arts & Culture Ramadhan Special Podcasts E-Paper Lifestyle & Entertainment Nairobian Entertainment Eve Woman Travelog TV Stations KTN Home KTN News BTV KTN Farmers TV Radio Stations Radio Maisha Spice FM Vybez Radio Enterprise VAS E-Learning Digger Classified Jobs Games Crosswords Sudoku The Standard Group Corporate Contact Us Rate Card Vacancies DCX O.M Portal Corporate Email RMS

How will malls survive tough times?

By Peter Muiruri | December 7th 2017
Signature Mall in Mlolongo. [Peter Muiruri, Standard]

Kenya has witnessed an exponential growth in mall development within the last five years. With close to six million square feet of formal retail space, Nairobi is the second largest market after South Africa.

This is a 41 per cent jump from 3.9 million square feet in 2016 and is expected to grow  to 6.9 million square feet in 2020. On the other hand, prime retail rents had stagnated at Sh525 per square foot as of June 30, 2017.

Now there is talk of an oversupply in this segment. However, developers are not deterred by such sentiments and are offloading more retail space into the market. Last week, Village Market unveiled the new mall extension that includes 100 new shops and a hotel.

In the same week, but on the opposite edge of the city in Mlolongo, Signature Mall announced its intention to start trading in the first quarter of 2018. Developed by Canon Aluminium Fabricators at a cost of Sh1.14 billion, the mall adds 472,000 square feet of built-up area to the market.

It too will have a supermarket, offices, shops and a hotel. It hopes to achieve 60-65 per cent occupancy by February.

In these and other mall developments, the key target is Kenya’s “expanding middle class with disposable income.” To break even for example, Signature Mall has put a target of between 4,500 and 6,000 of such shoppers daily. That translates to 180,000 people monthly.

But with the country’s key retailers – Nakumatt and Uchumi – faltering along the way despite similar ambitions, the new malls have their work cut out in developing a sustainable business model. But can this be done?

Vikram Khettry, chief executive officer at Azure Hospitality and whose group will operate a three-star hotel at the mall along Mombasa Road says the right location is everything.

Take a quick survey and help us improve our website!

Take a survey

“We recognise the urban population and businesses around the mall as part of our integral target market. Of importance to us is the mall’s proximity to Jomo Kenyatta Airport, making it possible to extend our reach to various travellers on either long stays or lay-overs,” says Khettry.

Anthony Havelock, Head of Agency at Knight Frank says Nairobi’s success in mall development results from the city being the gateway to the continent, and hence on every investor’s radar. His firm manages 10 retail malls or 1.6 million square feet of retail space. But the realtor acknowledges that the last 18 months have not been rosy.

“It is no secret that there is an oversupply of new retail developments across Nairobi in the past two years. Coupled with the situation of some local retailers, it has been a challenging time for the retail sector,” he says.

Havelock sees a silver lining in the dark cloud shrouding mall developments in Kenya. He expects the ground to settle as more local and foreign brands take some of the space left by struggling retail giants.

“Malls have a future,” he says. “But this future depends on malls avoiding mistakes made in the past by some developers.” Among the mistakes include opening a mall without anchor tenants and inadequate infrastructure. Other keys to malls’ survival include proper management and marketing as well as conceiving fresh offers.

Still, Havelock says a number of malls have managed to overcome some of these challenges and break even albeit after many months of suppressed business. A case in point is Galleria Mall in Langata. For 18 months, Havelock says people from Ongata Rongai drove past the new mall owing to lack of proper access. Due to legal issues, the nearby interchange took a long time before completion.

“But look at the mall today. The parking lot is ever full, especially on weekends as families look for leisure activities. As green spaces continue to disappear, footfall in the malls will only increase,” he says.

A further consolation to mall developers is the keen interest international brands have on the local market. There is demand especially by South African brands for strategically located malls. Analysts say these entities want to enter the market directly and not through franchises and thus engage directly with developers.

In October, real estate and investment firm Cytonn predicted an increased presence of foreign retail firms in the local market owing to “stronger financial muscle, better governance and management systems.”

A good example is Botswana-based Choppies, one of the fastest growing retailers in Africa with more than 200 stores.  It operates 11 stores in Kenya located in Nairobi, Kisumu, Nakuru, Kericho, Bungoma and Kisii. Others are set to open in Kiambu and Embakasi. Choppies is the anchor tenant at Signature Mall with 30,000 square feet of retail space. The retailer is not done yet.

“Our plan is to open more stores in strategic malls in Kenya. In fact, we have a five-year expansion plan to open 40 stores in the country. Kenya has a huge retail business potential,” said the firm’s chief operating officer Essam Sakr. According to the Cytonn report, developers need a paradigm shift on how they offer space to retailers especially where a big percentage of space is given to supermarkets.

“Developers may offer less space to anchors to mitigate overreliance on one brand or have other retailers other than supermarkets, such as fast foods, as anchors provided they can attract the relevant foot fall,” says the report.

No doubt such a proposal would rattle real estate developers. But would it be the silver bullet needed to get the local retail market out of the rut?

[email protected]

Share this story
To fight drought, involve communities
According to the latest information from the Meteorological Department, rainfall will be poorly distributed in April, May and June, and this will have a serious impact on agriculture
I eagerly await my baby's first steps
Spina Bifida, and though rare in the general population, it is the most common neural tube defect in the world