The Construction bubble is about to burst part 1: Malls

The Construction bubble is about to burst part 1: Malls

Over the years Nairobi has been overwhelmed by the construction of malls.

“Outside of South Africa, the Kenyan capital Nairobi has the greatest volume of modern retail floor space in sub Saharan Africa and it continues to be a development hotspot”, noted the 2017 Africa Report by property consultancy Knight Frank.

Developers have spent billions putting up mega shopping malls across the country in order to sire in international brands in the Kenya’s retail space. Leaving the Capital city with 630,000 square metres space of existing mall space. This is according to Mauritius based multinational Grit Real Estate Income Group.

 Nairobi has about 73% of the total number of shopping malls in the country.  Two Rivers Mall stands at  67,000 square metres retail space, Garden City mall 35,000 square meters and the hub 35,000 square metres. These three stand out as the largest city malls. However, in total there about 30 malls in the country, and the number keeps increasing as years goes by.

A report from Broll Property Group covering the commercial sector in 2017 indicates that average occupancy levels for commercial space are lowest in Upper Hill at 61% due to congestion. Nairobi’s Central Business District leads at 90% occupancy. Karen, Kilimani, Mombasa Road and Westlands were reported to have 88, 80, 85 and 74 per cent occupancy respectively with the property firm saying developers were having a harder time selling than renting.

But it is not only the oversupply and the expensive asking prices that are putting pressure to the commercial property sector.

One of the challenges that has made it difficult for the high-end office blocks to fill up is the fact that building owners insist on letting entire floors to only one tenant.

Empty hallways inside Malls.

The progressive growth of malls has left them empty. This is an indication that the shopping malls are struggling to make profit as the number of shoppers are not being converted to business. Most residents in Nairobi and other cities in the country are finding shopping in malls, too expensive.

This has made the retailers in the existing malls perform poorly. It therefore pushes the landlords to get ways to lure tenants by offsetting goodwill charges. Some malls have been offering  3-6 months free rent in exchange of a 5 year lease. Whereas others have reported to have competing businesses occupy the same space. Traditionally this was a no-no, however our research shows that this might actually be crazy enough to work.

Investments that are hoped to give profits decline as mushrooming of the malls makes the retailers scramble for the few affluent shoppers.

However, this comes down to how well the investors or developers are carrying out their market research to avoid the loses of vacant premises in malls.

Further – which stores are they enlisting to play as their anchor tenants? Traditionally supermarkets have been the most favorite type of anchor tenant. However, we believe that this is a huge mistake. Existing data shows us there is more that goes into attracting horizontal and vertical footfall than a supermarket..

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