EAST AFRICA – Investors in the region’s mall business are struggling to boost their returns, despite the fact that the sector is growing, with a number of new developments coming up.
Retailers prefer prime space in capital cities and their suburbs, but as the latter get saturated, developers are finding it difficult to entice anchor tenants, whom they rely on to buy space.
According to retailers and sector advisory firms, Nairobi is headed for saturation point, while Kampala, Dar es Salaam and Kigali are still in the early stages.
Thiagarajan Ramamurthy, regional operations and strategy director of Nakumatt Holdings, said that mall development is growing fastest in Kenya, followed by Uganda, Rwanda, and lastly Tanzania.
Joseph Kamau, a commercial retail expert at Dunhill Consulting Ltd, said that in Kenya, rent for prime retail space has been stable at Ksh5,000 ($48) per square metre per month, an indication that the market has been cooling off.
Grade A malls
James Karoki regional retail manager, Knight Frank Kenya, said developers are now eyeing First World class (Grade A) malls that can attract international retailers as anchor tenants.
“In six years, the Nairobi suburbs are expected to grow to a point of saturation as developers eye world class malls,” said Mr Karoki.
Kenya has 1.8 million square feet of shopping malls coming to the market, according to a report by Knight Frank— Global Cities: The 2016 Report — launched in November last year.
Knight Frank Kenya has 250,000 square metres in the pipeline for mall development in Nairobi.
According to Dunhill Consulting Ltd, international food, fashion and entertainment are major attractions at the malls.
“We have new entrants in the Kenyan market such as Zuchinni, Foschini Group, Landmark Group (Dubai) and News Café. Many more are expected to flock into the country,” said Mr Kamau.
Upcoming malls in Kenya include Ridgeways Mall and the Rosslyn Riviera on Kiambu Road; and the Two Rivers Mall on Limuru Road.
At Two Rivers, almost half the total space on offer is expected to go to international retailers. Key tenants will include Austrian jewellers Swarovski and French supermarket firm Carrefour.
South African retailer Massmart, has opened its first store in East Africa at Garden City Mall on the Thika Superhighway.
In Karen, the Hub is due to open in February while the Waterfront Karen Mall has been proposed.
“In high end places like Karen, not everybody goes to work, because residents run businesses with a lot of flexible time, therefore, a chance to shop all through the day,” said a source familiar with the malls’ establishment deals. “The malls around such places could offer luxury products.”
“Other malls in Nairobi are in the Grade B and Grade C classes; we may see an upgrade in coming years as owners seek international retailers in fashion, design and food,” said the source.
Other malls that have been proposed are the General Motors Mall, Next Gen Mall, Bellevue Mall and South Fields Mall on Mombasa Road; the Point Mall (off Jogoo Road) and further ahead on the Kangundo Road is the proposed Laxcon Mall.
Other urban centres across the country where malls have been developed include Buffalo Mall in Naivasha, Westside Mall in Nakuru and the proposed Buffalo Mall in Eldoret.
Upcoming malls include Kingdom Mall, a 40,000 square metre establishment whose construction is expected to be complete by 2017. Knight Frank Kenya is part of the developing team.
The company has almost 100,000 square metres in the pipeline for Kampala.
“The market is still underserved in terms of fashion, while Ugandans prefer local food as opposed to fast food in lucrative points like the malls, said Karoki.
At Ntinda, a suburb in the northeast of Kampala’s central business district, a new mall where Nakumatt will be an anchor tenant is being set up. Capital Shoppers City, the largest locally-owned supermarket chain in the country has opened shop at Ntinda.
Experts say that while Tanzania has a faster growing economy compared than its peers, presenting a huge market opportunity, the informal market will remain a preferred form of shopping for a long time to come, holding back investments in malls.
“Dar es Salaam has not attracted huge investments, implying it will take time to spread to other areas,” said Mr Karoki.
“There is a huge gap between the low and high end classes, meaning the middle class demand for shopping for food, beverages and clothing from a formal setting does not exist; the target is the wealthy, who at times prefer going abroad for shopping.”
Milimani Shopping Centre in the suburbs of Dar es Salaam is being expanded by an additional 10,000 square metres by 2017, from the present 18,000 square metres.
Most of the establishments in Dar es Salaam are stand alone supermarkets, including Nakumatt.
The Peninsular Shopping Centre, a 30,000 square metres retail centre at Masati in Dar es Salaam, is expected to be ready by 2018. Masati is the equivalent of Kenya’s Muthaiga or Uganda’s Kololo areas where people have upmarket tastes and preferences and want to have a complete experience under one roof.
A 45,000 square metres mall, the equivalent of Kenya’s Hub in Karen is being developed at Mbezi, some 2 kilometres from Dar es Salaam on 25 acres.
Sources said Carrefour and Nakumatt are in discussions with developers as possible anchor tenants at the mall which is located next to the American Embassy. It will be ready by 2018.
Tanzania’s National Housing Corporation has invited investors in its Morocco Square which has a projected size of 110,000 square metres (gross floor area), office space of 47,793 square metres and 28,827 square metres for commercial space.
It also includes 8,456 square metres of hotel spaces. Experts said the developments in Tanzania compare to Nairobi in 2002, with the advantage of modern world-class designs instead of starting from a low grade and then upgrading.
“The wealthy in Dar are expected to continue shopping abroad. A diversified choice abroad will still pull a sizeable market,” said Mr Karoki.
In Rwanda, Nakumatt will be the anchor tenant in an upcoming mall at the Remera Area near the airport, which is expected to be ready by 2018.
Recently, Simba Supermarket Rwanda signed a lease agreement with Kigali Heights Development Company that will allow the former to rent at least 1,500 square metres of space at the Kacyiru-based modern mall that is under construction.
The mall will host international brands, among them the Australian retailer Woolworths and Java House coffee shop.