KENYA – According to the Kenya Retail Real Estate Sector report 2019 by Cytonn investment, the retail sector recorded a 1.1 million SQFT increase in mall space in 2018, leading to a supply of 12.5 million SQFT in 2019 from 11.4 million SQFT in 2018.
The retail real estate sector in Kenya has continued to witness growth evidenced by an increase in malls and the number of international retailers taking up retail spaces in the country.
New mall openings included; The Karen Waterfront in Karen, expansion of Sarit Centre in Westlands and Mwembe Mall in Mombasa, among others.
However, the sector faced several challenges due to a tough financial environment, pushing property managers to employ prudent methods in a bid to retain tenants and also to target international anchor tenants.
Despite of these challenges, it is expected the performance of the retail sector to be cushioned by the presence of strong international retailers such as Carrefour and Shoprite, food chains such as Subway, Burger King and KFC, as well as local retailers such as Tuskys and Naivas.
These retailers have continued to take up space in malls and mixed-use developments, in a bid to expand their local footprint, thus providing a boost to the retail sector.
In 2019, the Kenyan retail sector’s performance dropped slightly with average rental yields declining by 1.6percent points to 7.0percent, from 8.6percent in 2018. Occupancy rates declined by 8.7percent points to 77.3percent in 2019, from 86.0percent in 2018.
The decline in performance is mainly attributed to an introduction of 0.8 million SQFT of retail space into the Kenyan market driving down rents and occupancy rates by 10.2percent and 4.8percent points, respectively.
Amid the growing retail sector various retailers in Kenya have embarked on downsizing measures largely due to financial constraints that result from poor governance and oversight coupled by tight competition in the sector.
As such, Botswana-based Choppies announced plans of exiting its Nanyuki Mall branch, which is to be taken up by local retailer Tuskys.
The closure of Choppies branches and its planned exit from the Kenyan market is a result of stock shortage and corporate governance issues facing the retailer hailing from its parent companies in Botswana and Zimbabwe.
The retailer has been on an ambitious expansion drive with plans to increase its East African footprint, evidenced by its growth in Kenya from 10 stores in 2016 acquired from the Nairobi-based Ukwala to 17 nationally as at June 2019.
Aggressive retailer expansion in a bid to tap into the growing middle class has often led to financial constraints for major retailers such as Nakumatt, Uchumi, and now Choppies.
This is largely due to thinning profit margins, poor capital management and fierce competition from the increasingly growing international retailers such as Carrefour, who attract the high-end and upper mid-end income classes.
According to Shoppers’ Trend 2019 Report by Nielsen, a multinational data and measurement firm, informal retail in Kenya accounted for 66.3% of the total retail spend for the year ending March 2019, a 10.7% growth since 2018, whereas modern supermarkets on the other hand accounted for 33.7%, a marginal growth of 0.4% since 2018.
In comparison to countries such as South Africa, which has an estimated formal retail penetration of over 60.0% and an average of 80.0% in developed countries, Kenya’s formal retail penetration is considerably low and therefore, still has potential for a lot of growth.