Establishment of new Malls extend losses for retail property investors

The establishment of new malls in the past year has extended losses for retail property investors, a new report shows.

According to the annually published Cytonn Retail Real Estate Sector Report, the new establishments have freed up an estimated 800,000 square feet (sq.ft) of new commercial space extending the oversupply of retail spaces around the country.

Subsequently, the supply has extended the outstrip on demand to further push down both rental yields and occupancy rates.

Retail supply during the year increased to Ksh.12.4 million sq.ft from Ksh.11.4 million sq.ft in 2018 forcing developers to offer incentives to prospective tenants to fight off the competition.

“Retail spaces are now differentiated themselves in order to attract footfall by focusing on entertainment and recreational facilities,” notes the report in part.

Retail yields during the year eased to seven percent in 2019 from 8.6 percent in 2018 as the average rental income per square feet reduced to Ksh.118 from Ksh.132 in the past year.

Additionally, occupancy rates declined by 4.8 percent to 77.3 percent to mirror the retail developers pain staking quest to fill up spaces.

New malls completed during the year included Karen’s Water Front, Signature Mall in Athi-River and the Lake Basin Mall in Kisumu and the Mwembe Mall in Mombasa.

Moreover, new retail spaces emerged from the expansion of Nairobi’s Westgate Mall and Sarit Centre.

Nevertheless, retail spaces in Kilimani, Ngong Road and Westland withstood the slump to post rental yields above the sector’s average at 9.9 and 9.2 percent each respectively.

Commercial centers in Satellite towns represented the least yields having posted and average return rate of six percent.

Further afield,  retail developers in the Mt. Kenya region scored a solid 8.6 percent rate of return from the relative low supply of commercial spaces in the segments which represents a mere 7.7 percent of the total sector’s market share.

Nakuru meanwhile saw the lowest rate of return at 4.5 percent as mixed unit developments upset the competition for clients in the town.

The continued slump of the sector’s return matches up to the recent historical average which has further been execrated by the constrained spending power by customers dictating the slow pace of occupancy.

Asking prices for commercial spaces have for instance fallen to an average Ksh.118 per sq.ft from Ksh.154.90 in 2016 keeping in touch with the falling occupancy and rental yields.

In spite of the consistent slide, analysts expect the real estate sector to hold up from the expected return of activity to the core segment.

“We remain upbeat about the performance of the sector as it is still cushioned by increased market activity, driven by the entry of international retailers and expansion efforts by local retailers,” said Cytonn Real Estate analyst Joseph Wanga.

Domestically, Tuskys and Naivas supermarkets have sought to expand their outlet base while externally, Spanish fashion retailer Mango and South Africa’s Shoprite have setup shop in the country in the past year.