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Struggling shopping malls and what it means for Nairobi

That almost every corner of Nairobi has a mall today is not in contention, but are these real estate monoliths making any economic sense to the developers?

In the race to outdo each other with the glitziest, swankiest shopping mall, are developers burning money? Does Nairobi, really, need a mall in every residential estate?

To answer those questions you need to consider this; there are approximately 48 malls in Nairobi, both within the CBD and in the outer pockets of the city, especially along Thika, Ngong, Mombasa, and North Airport roads, as well as within the residential neighbourhoods of Komarock, Kayole and Ngong.

Further away from the limits of the city, in places like Thika, Kitengela and Machakos, which also serve as the bedrooms of Nairobi’s workforce, the craze is catching on too.

But whereas shopping malls in other towns — like Mombasa and Kisumu — seem to be serving a need, some of those within Nairobi’s residential areas are literally pissing in the wind.

And the current economic and political climate is not helping matters at all.

EMPTY HALLS

Empty halls, shops and parking lots are the order of the day, especially in the week, only populated by gawking ‘window shoppers’ over the weekends. Occupancy remains a hit-or-miss affair within the estate malls.

This is giving developers a hard time as they try to figure out what to do next. At NextGen Mall, off Mombasa Road in the South C neighbourhood, the management, led by Navin Shah, even as it primes itself for take-off, agrees that business has been tough, especially this election year.

“With all the politicking you expect a lot of anxiety,” says Shah, indicating that anxiety and new malls, generally, do not mix well.

Investors want a predictable political and economic environment, and election years tend to be depressing.

His sentiments are echoed by Bashir Dalvi, the chief operating officer at Thika Road Mall.

“It has been a lull market since January,” says Dalvi. “Inflation has pushed up the cost of living dramatically, and then the politics of unga hit us badly since July.”

FALLING FORTUNES

Food inflation might not point to easy connections with the falling fortunes of malls, but in a country where supermarkets are, invariably, the anchor tenants for malls, when people cannot afford unga or rice, the footfall into supermartkets, and therefore malls, takes a beating.

NextGen opened its gates to the public two years ago with the exciting offer of owning a piece of the pie rather than renting it.

“It was the first time in Kenya a mall was being sold to business people to put up offices and shops,” Shah recalls. “It excited the market.”

But so far only 70 per cent of the space has been sold. And, to make matters worse, anchor tenant Nakumatt Supermarkets has just exited following a biting financial crisis that has crippled the retail chain.

Arabian retailer Souk Bazaar has expressed interest in the 90,000 square feet of space on the ground and first floors of NextGen.

“This will no doubt give the mall a bounce,” says Shah. “It will be the second-biggest shopping space after Carrerfour at Two Rivers.”

INTERNATIONAL RETAILERS

At TRM, Nakumatt is also closing shop, and the management says it is looking for international retailers to fill the void.

“We got plans, no matter what happens to Nakumatt,” says Dalvi.

NextGen, feeling the pinch of empty shops, has introduced an interest-free, rent-to-own model for prospective investors.

“We are not asking for any commitment fee or deposit,” says Shah. “Just pay 10 per cent of the actual purchase and settle the rest in instalments. We are actually giving back to community by enabling the ordinary businessperson to own a part of the mall.”

Even though business has slowed down, TRM’s location seems to have worked for the investors. The mall is surrounded by middle-class residential estates — Ngumba and Kasarani. Some drive in while others just walk in to shop, bank, eat or just have a good time at the coffee shops and fast food outlets.

CUSTOMERS LOYAL

“Our customers have been loyal,” says Dalvi. “But also retailers have struggled with tartgets.”

A recent study showed that most of their footfall is aged between 18 and 35. “These are upcoming professionals and entrepreneurs, and what they are looking for at the mall is a wow shopping experience,” says Dalvi.

Generally, business at the mall has been vibrant as the only available space has been taken up by the UK-based Easy Gym, which is setting up in Kenya.

NextGen’s location is served well by estates along Mombasa Road, such as South C and the industrial area. It is also a gateway to the city and an entrance to the north of Nairobi through the Southern Bypass.

The locale is ideal, as it is next to three-star hotels such as Eka Hotel, Panari Hotel and Ole Sereni, but the investors want residents surrounding them, not tourists. More people living around the mall would mean more people looking for stuff to buy or a place to have fun in.

As a result, the management is building two- and three-bedroom apartments just behind the mall to create a community. The apartments fetch Sh6 million and above, through a similar rent-to-own model.

“They will be served by the biggest food court in Kenya — serving all cuisines and complete with a kids playground, a swimming pool and other amenities,” says Shah.

TOUGH TIMES

The tough economic environment for mall investors started way back in 2015, says Patrick Kavindu, a fund operations analyst at Cytonn Investments.

“In the second half of 2015, interest rates on loans went down and this saw a high liquidity in the market, making inflation a bit unstable,” Kavindu offers.

And then, to make matters worse, the government borrowed from the market, seeing interest rates on loans shoot above 20 per cent. Most homeowners could not afford to take up mortgages and a high rate of default on loans led to a challenging operating environment.

“To control this, the government capped interest rates,” says Kavindu. And, miffed, banks responded by stopping lending the ordinary mwananchi due to the lowered profitability.

This has seen the rate of mortgage uptake slow down — the first decline in the last five years — to a constant 24,000. Private sector credit growth has also sharply dropped, from 18 per cent to two per cent; meaning growth within the SME sub-sector is minimal.

“The private sector is the mainstay of the economy,” says Kavindu. “When it does not contribute as much, incomes do not grow, affecting spending culture and future investments. The government should rethink the interest rates cap as it has not had the desired effects. It is affecting the economy, not just banking.”