Corporate

Warning of retail space oversupply as developers make bee line for Nairobi

A section of the Two Rivers mall in Nairobi. In the US, where online shopping has grown exponentially, retail analysts predict that one-third of shopping malls will shut down in coming years as foot traffic drops. PHOTO | SALATON NJAU
A section of the Two Rivers mall in Nairobi. In the US, where online shopping has grown exponentially, retail analysts predict that one-third of shopping malls will shut down in coming years as foot traffic drops. PHOTO | SALATON NJAU 

Real estate developers are staying put in their ride of the nearly a decade of buzz around Nairobi’s standing as one of Africa’s most robust commercial property markets with the opening of new malls despite emerging signs of oversupply.

NextGen Mall in Nairobi’s South C is the latest retail outlet to open its doors to the public — its developers encouraged by recent reports that have identified the city as the top sub-Saharan destination for retail developers.

“Nairobi is the leading destination in Sub-Saharan Africa for developers setting up shopping centres. It is the largest market by existing shopping centre floor space (391,000 square meters) and it has the biggest development pipeline (470,000 square metres),” said property manager Knight Frank in a recently published report titled 2016 Shop Africa.

Kenneth Kaniu, the Britam Assets Manager CEO, has however cautioned that the city could face an oversupply in retail space, even as it moves into an equation faced by other countries of consumers choosing to use other ‘‘convenient’’ means to buy such as online shopping, which has, elsewhere, led to the closing of retail spaces.

“Beyond the Two Rivers mall, expected to open in the next few months, no further retail space will be required in Nairobi, as there will be oversupply,” he told delegates at last year’s East Africa Property Investment Summit.

In the US, where online shopping has grown exponentially, retail analysts predict that one-third of shopping malls will shut down in coming years as foot traffic dips from 35 million in 2010, to 17 million in 2013. That decline has already led to the closure of mall’s anchor stores.

“On an apples-to-apples basis, we have twice as much per-capita retail space as any other country in the world. The estimated square feet of retail space per citizen is 48 square feet and the footprint is poised to decline. Four hundred of the 1,100 enclosed malls will fail in the coming years,” said US retail analyst, Jan Kniffen, in an interview with business news television channel CNBC.

Experiential marketing

However, the malls that have already closed in the US have often been renovated and remade into hospitals, schools, churches and colleges.

An example in Austin Texas is Highland Mall that officially closed in 2015 and was bought by the Austin Community College and currently has 604 computer stations, 200,000 square feet of instructional space, a library, and offices.

However, the Knight Frank report noted that there is still room for more shopping malls in Nairobi, especially in neighbourhoods where residents have to board vehicles in order to visit the retail centres.

“Despite the high levels of recent construction activity, there are still opportunities for the development of well-located, well-positioned malls across Nairobi. Several neighbourhoods remain under-supplied for shopping centre space and retail demand will continue to be driven by the growth of Nairobi’s consumer classes.

“Also, unlike shopping malls in the US, retail centres in the country have incorporated experiential marketing to attract millennial consumers who are seeking memorable experiences from their shopping, a factor that has been identified as one of the reasons for the demise of America’s malls.

“The shift is in how people are shopping, this means the future of retail fulfillment is no longer just about more stores or shopping centres. Americans are increasingly choosing to spend on technology and experiences like vacations, leaving less money for apparel,” according to a report by US real-estate research firm Cushman and Wakefield.

In Kenya’s case, the shopping malls are being developed as city hubs, where people can live, work, shop and play at the same time; thus appealing to consumers at a wider level.

“Among the new projects for Nairobi’s new malls there is a clear trend towards mixed-use, rather than pure retail, development as office, residential and leisure facilities have been incorporated into the schemes,” said the Knight Frank report.

- African Laughter