As more malls keep being constructed, others opening in various neighborhoods of Nairobi, Fusion Capital, an investment management company asserts that there is an oversupply, that will hamper returns.
But the report says that Kenya’s strong growth potential is expected to generate demand in the city’s real estate sector. “Factors, such as development of oil and gas sectors, can contribute to the upward trend in Kenyan real estate by supporting infrastructure development and urbanization in the country”, it adds.
Kenya’s economic growth and infrastructure development have increased over the past decade. Increased urbanization coupled with increasing incomes have led to a 65 per cent rise in consumer spending, these factors have pushed the retail real estate sector to grow five times in the last decade.
Nairobi is the second largest market after South Africa with approximately six million square feet of formal retail space, up 41 percent from the 3.9 million square feet registered in 2016. It is further expected to grow to 6.9 million square feet by 2020.
Between 2000 and 2008, Nairobi added 72,000 square meters of retail real estate, while between 2009 and 2017, the capital city added 351,900 square meters (approximately five times of earlier addition) of retail real estate across 17 developments.
Reportedly, vacancy rates in Nairobi have only reduced below 10 percent after two-three years of operation and as a result, many of Nairobi’s newer developments have taken more time than expected to mature.
However, the oversupply of retail spaces is expected to exist in the near future, which along with increasing costs, long investment tenors and slow rate of retail stock utilization temper investors’ expectations of high returns in the short term.
Nairobi’s retail market has evolved with new entrants, who have rapidly adapted to changed consumer behavior. Recently built malls reflect the evolution of retail real estate market by offering experiences for the whole family as well as allocating the space to retail as well as entertainment and leisure activities etc.
Two Rivers Mall, Roselyne Riviera Mall, Garden City Mall, Thika Road Mall and Capital Center are some of the malls that Nairobians experience. Others include Galleria Shopping Mall, The Junction Mall, Westgate Shopping Mall, Yaya Centre Shopping Complex, The Sarit Centre, Village Market, The Crossroads Mall, Greenspan Mall, Highway Mall, The Hub Karen, Prestige Plaza and T-Mall.
Kenya’s vibrant retail market, which has a current penetration rate of just 30 percent, has lured foreign retail chains such as Carrefour, Choppies, Shoprite etc., in turn witnessing a rise in investment as well as competition in the last 18 months. Other leading enterprises like fashion stores are also eyeing their pie in the growing middle-income city dwellers. The performance of these retailers in the coming years and the progress of the retail market will drive growth in the retail real estate space.
The report says that satellite towns in the country-side provide room for expansion and development of retail shops and malls, as an attractive investment option.