Malls oversupply in city seen hurting developers’ returns

The retail property market is facing an oversupply of malls with slow uptake noted in some areas, a real estate consultant has cautioned.

This is likely to hurt returns for mall owners over the medium term, according to Gerhard Zeelie, head of real estate finance, Africa Region, at Standard Bank. The Johannesburg giant operates as Stanbic Bank in Kenya.

“Robust retail real estate build of the last decade means that for the foreseeable future Nairobi is probably oversupplied with stock,” said Mr Zeelie in a statement.

He added that given the cost, long investment tenors and slowed rate of retail stock utilisation, investors should not be looking for “stellar returns overnight”.

Mr Zeelie said the mall glut had hurt the occupancy rates of new malls.

“Many of Nairobi’s newer developments have taken much longer to mature than initially anticipated - with vacancy rates only reducing below 10 per cent after two to three years’ operation,” said Mr Zeelie.

READ: 50pc drop in mall tenancy signals retail space glut

The assessment comes amid fears that the woes facing large retailers, who are the anchor tenants in most malls, are likely to compound problems for owners. Key tenants have been closing operations.

Nakumatt and Uchumi #ticker:UCHM supermarkets are among troubled retailers that have announced plans to close poorly performing branches in Kenya, Uganda and Tanzania to cut cost.
However, the fortunes for mall developers are likely to change for the better with Kenya’s longer-term growth prospects, said Mr Zeelie.

Factors that could drive take up of real estate stock, he noted, include the development of the country’s oil and gas sectors that would trigger new retail spending.