Competition for tenants in Kenya’s retail property sector is due to heightening this year with an estimated half a million square feet of new space due to hit the market.
Listed property fund ILAM Fahari I-Reit said in its annual report for 2022 that despite continued competition among the large retail chains for prime space in malls, there has been a decline in the performance of these large properties in the face of a shift towards smaller convenience centres in residential neighbourhoods.
The segment has also seen a sharp rise in the supply of space in recent years, leaving some malls unable to fully sell their available shops beyond the anchor units that are occupied by supermarket chains.
The fund also cited a recent report by Boston Consulting Group (BCG) which showed that a majority of Kenyan shoppers (77 percent) still prefer to buy goods at traditional retailers, commonly known as dukas.
“With over 500,000 square feet of new supply planned to hit the market in 2023, the retail centre owners are expected to devise various strategies to attract and optimally pace tenants within the malls and wade off stiff competition from the traditional dukas,” said ILAM.
“Tenants continued to renegotiate rents, and we witnessed a drop in asking rents, especially in centres with high vacancies. Market rents remained flat or reduced, and vacancies on upper floors took longer to fill during the year under review.”
The lingering effects of other shocks such as the Covid-19 pandemic have also weighed on the retail segment, with consumer purchasing power yet to fully recover.
In 2022, the jump in the cost of living partly as a result of the Russia-Ukraine conflict as well as the negative effects of the prolonged general elections period continued to plague the retail sector.
Further, the fund noted, office space developers are also facing similar erosion in asking rent prices, partly due to a large amount of new space coming in amid fairly muted demand.
An estimated 2.45 million square feet —equivalent to 20 percent of the current supply— is in the pipeline to hit the market, Fahari said, with developers who can provide quality premises able to beat off competition from owners of older buildings.
In the last three or four years, the fund noted, asking rents have been dropping, particularly in the most oversupplied areas of the city.
“Going forward, occupiers are expected to keep good leverage towards landlords in the short term. Despite the gradual increase in product quality, asking rentals are unlikely to significantly increase in the short term,” said Fahari.
The industrial space has, however, got a more positive outlook, due to rising demand for quality storage and logistics facilities that are supported by the improved access infrastructure across the city.
Small and medium-sized enterprises, agro-processors and fast-moving consumer goods firms have driven the demand for industrial space.
