Due to unfriendly economic climate, Nigeria did not record any delivery of new space in the formal retail market in the first half of 2019, Newfieldglobal has learnt.
According to the latest report by Broll Nigeria, although some projects are nearing completion in the core and secondary markets, they are yet to be delivered.
These uncompleted projects, Broll analysts said measured below 10,000 square metres (m²) and included the Landmark Retail Boulevard (approximately 6,000m²) and the Simbiat Ikeja Mall in Lagos state (4,900m²); Oshogbo Mall in Osun state (roughly 5,000m²) and a retail project in Port Harcourt of approximately 9,000m².
Additionally, analysts disclosed that a number of developers, both local and foreign, in the formal and informal sectors, were currently in the project conceptualization phase of a few developments in both the core and secondary markets.
While the international developers tend to be relatively new to the market and are leaning towards the more traditional formal retail designs (10,000m² +), analysts noted that local developers were looking at smaller projects to suit the demographic locations in which they would operate in.
In the period under review, analysts stated that landlords were able to highlight certain factors that existing occupiers now require to enhance the usability of their current space.
Such factors, according to them, included improved amenities, additional seating areas within the mall, free onsite parking to improve dwell time, early lease terminations and service charge reconciliations.
The analysts said: “Moreover, possibly the most important factor that has been highlighted by existing tenants is a reduction in occupied box sizes.
“Medium to large box sizes have proven difficult to lease in both core and secondary retail markets as prospective tenants are unable to justify the financial costs attributed to acquiring these premises which range from 100m² – 1,000m².”
On overall vacancy rates, analysts said the rates averaged 20 per cent across core and secondary market locations,noting that the very successful malls were operating at below two per cent vacancy rate.
On rental values, the Broll report stated that rents have remained largely unchanged in first half of 2019 in secondary market locations.
However, the analysts said there have been notable revisions upwards in rental values in the core market, noting that asking rentals in the successful malls in Lagos were above $100 per square metre per month for 50m² – 250m² boxes.
“While, average asking rentals in other core market locations generally range from $40/m²/month to $75/m²/month, up from $30/m²/month to $70/m²/month recorded in H2:2018, rentals are flat in secondary market locations at $15/m²/month to $25/m²/month,” they said.
According to the analysts, landlords in the core market retail malls were less inclined to offer discounted rentals, as was once the case during the economic recession, especially as vacancy rates declined in certain malls.
They said: “Landlords are also generally unwilling to accept naira denominated rents in core market locations, however, with the exception of a small minority, naira rentals are welcomed in secondary market locations.
“In the near term, landlords largely see no capacity for rental growth from current levels, and even though new deliveries are set to increase supply, it is not anticipated to be at a magnitude capable of disrupting current rental rates.”
On outlook of retail space,analysts explained that local retailers were expected to drive demand in the coming months as international brands look to entrench themselves in the market through experienced franchise operators.
On the supply side, they said: “Approximately 25,000m² of retail stock is set to enter the market by year end. This is in addition to the existing 350,000m² of retail stock existing in the core and secondary market locations.”
The analysts expect landlords in both core and secondary market locations do not foresee an increase in rental values in the near term. Rents are likely to remain flat in the core market while there is potential for rents to decline in the secondary markets, conditioned on possible vacancies as well as the landlord appetite to keep their malls leased to a certain degree.
On demand for retail malls during the first half of 2019, latest report from Broll Property Intels, said there had been notable tenant activity in the formal retail space, adding that enquiries increased moderately in key malls within the core and secondary markets.
The report read: “A number of transactions have been concluded in the food and beverage, fashion and accessories as well as beauty and personal care categories, however, the majority of these transactions have remained under square metres(m²) in size.”
Moreover, analysts from Broll stated that some existing tenants that have struggled to meet financial obligations in the past have been noted to be exiting malls as their lease tenures expire.
“This is despite financial concessions and payment plans offered by some landlords. International brand interest in the Nigerian retail space has slowed down to a certain degree as strong enquiries in the formal retail market have not translated into actual transactions,” they said.
According to the analysts, general consensus amongst a number of brands was that they required experienced local franchisees to introduce their brands into the market.
“They added that delay in establishment of these global brands in the market suggested that existing pool of experienced franchise operators were not looking to take on new brands within their portfolios at the moment,” Broll report read.