Shoppers leave the Garden City Mall on Thika Road in Nairobi on May 31, 2015. PHOTO | FILE
With over 400,000 square meters of space to come under shopping malls in Nairobi within the year, anxiety is building over whether demand can match up.
According to Knight Frank’s 2016 sub-Saharan Shopping Centre Development Trends, Nairobi already boasts of 391,000 sq meters of existing mall space with an additional 470,000 sq meters in the pipeline.
Market analysts are edgy as to whether real estate, Nairobi’s most lucrative growth sector that has prompted construction of huge shopping malls may be headed for a glut.
Realtors are worried that floor space is not selling as fast as anticipated with some malls running empty stalls while some owners opting to occupy huge spaces with their own businesses.
Last week, during the East Africa Property Investment Summit, Britam Asset Managers said that to consolidate profits, it was time construction of shopping malls in the city is brought to a halt.
“Beyond the Two Rivers Mall expected to open by the end of this year, no further retail space will be required in Nairobi, as there will be oversupply,” Britam Asset Managers CEO Kenneth Kaniu said.
However, James Hoddell, the chief executive of Managers and Mentor Management Limited (MML) said yesterday the current anxiety is not necessarily due to oversupply, but tough market conditions for businesses.
“It has been a tough market for retailers last year so I do not think it is too much space. Some areas like the Runda may not have more space, but there are other areas that are underserved,” he said.
Mr Hoddell said that the low-end market may be the next frontier for growth of retail space especially setting up market stalls.
Knight Frank said some areas of the city remain underserved and the swelling middle class with rising incomes presents an opportunity for growth.
“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 undersupplied for shopping centre space and retail demand will continue to be driven by the growth of Nairobi’s consumer classes,” the report reads.
Knight Frank’s research has identified Nairobi, Luanda, Lagos, Dar es Salaam and Maputo as the cities with the five largest shopping centre development pipelines in sub-Saharan Africa, excluding South Africa. All of these cities are currently targeted by investors in Africa.
Head of Africa for Finland-based Taaleri Private Equity firm, Antti-Jussi said that with diminishing returns abroad, Kenya is likely to see more investor interests from the USA, European Union, Turkey and Asia looking for prospective projects.
He said that investors are not worried about oversupply in the real estate sector given that in the Kenyan case, it is not supported by risky debt.
“When you talk about glut or a bubble it is usually a problem when the sector is financed with banks credit but in our case Kenya’s real estate segment is getting a significant amount of private equity financing which supports it,” he said.
Nairobi is ranked as the hottest retail property market outside South Africa by Knight Frank.
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