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Retail jitters over mall owners' delay to offer rent relief

By Wainaina Wambu | May 7th 2020
File photo of the Urban Grind Restaurant, situated at the Highway Mall next to Nyayo Stadium (PHOTO BY PIUS CHERUIYOT)

Retailers operating in major malls across the country have raised concerns over the “silence” of their landlords on rental relief measures. This is as the economy continues to experience shocks arising from the coronavirus pandemic.

A spot-check by Home & Away at buildings with stalls within Nairobi’s Central Business District (CBD) shows that some landlords have agreed to slash rents by up to 25 per cent.

Retail Traders Association of Kenya (Retrak) Chief Executive Wambui Mbarire, however, says only a few mall landlords have given rent reprieve to retailers in light of the pandemic that has seen reduced footfalls and ravaged economies.

Last month, Retrak forwarded proposals to mall landlords including rent freezes and a 50 per cent waiver on service charges. “Very few have offered rental reprieves. The majority are still in negotiation,” Mbarire told Home & Away yesterday.

However, some malls had offered concessions such as reduction on service charges by 50 per cent.

A report released yesterday by property management firm Knight Frank on the pandemic dubbed Covid-19: Kenya Property Market Outlook, indicated that the retail sector was one of the hardest-hit.

This is attributed to various government directives that have restricted movements. “The Retail sector is perhaps the most significantly affected in the property market,” said the Knight Frank report.

“The resultant decline in human traffic to major malls due to various government directives such as curfews and social distancing has resulted in a substantial slowdown of various businesses within retail centres.”

The report further notes that the struggle for landlords and tenants to meet in the middle for rental reprieves have failed to pay off.

Some landlords are even considering charging rent based on turnover. “In the short term, some landlords have been considering rental concessions on a case by case basis as they understand the difficult situation, and are exploring ways of preserving their cashflows through service charge management and considering turnover based rentals,” said the report.

During a webinar last month, on examining the effects of Covid-19 to retailers, Mbarire had raised alarm over rent being charged on turnover.

She regretted that some malls were asking for turnover rent and insisting that businesses remain open despite being aware of the harsh economic times.

“I know a mall that’s said you can come in and do turnover rent. But being open defeats the purpose because there’s hardly people going into a mall. They just go into supermarkets and walk out. The rest of the retail business considered non-essential - having little or no sales since March 15,” she said.

The Knight Frank report, however, noted that anchor tenants that provide a one-stop-shop for fast-moving consumer goods were recording steady traffic due to the essential nature of their goods.

Pharmacies and traders selling indoor and outdoor exercise equipment such as bicycle shops have also had a steady stream of shoppers, noted the report.

However, the decline in footfalls has seen the rise of online retailers. Landlords are also demanding the clearance of any rental arrears first before any future discussion on reliefs can be held.

At Imenti House, Nairobi CBD, traders operating in the stalls have received a reprieve after rents were reduced by 25 per cent for three months including May.

Here, the cheapest rent is Sh19,000 for a tiny stall with the most expensive one being Sh45,000.

“The management wishes to inform you that in view of the current economic crisis brought about by Covid-19 pandemic, it has considered a reduction of rent by 25 per debt for the months of May, June and July 2020,” said the management in a notice to stall traders.

“You must agree that this is a generous and compassionate offer considering that we, too have loan obligations to service.”

However, a trend noted by Knight Frank was “opportunistic buyers and tenants” taking advantage of the Covid-19 pandemic to place lower rents or purchase offers “hoping to meet distressed property owners to get a good deal.”

Hooman Ehsani, the director of development at Greenhills Investments, a family run venture that operates The Village Market with 260 outlets said they were still “reviewing” lease and rental agreements as they wait for relief measures instituted by the government to be finalised.

 “There were a lot of questions from tenants, right now, we are reviewing everything. There’s some support expected from the government and from the banks that haven’t been finalised as those come in we can give guidance,” said Ehsani.

 Julien Garcier Managing Director of Sagaci Research, a market intelligence firm across Africa observed that it was “too soon” for the real estate industry to rebase rent levels, but warned the coronavirus crisis might last longer “than everyone expects.”

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