Though the retail market is apparently doing well with encouraging demand for basic consumer goods and entertainment amid economic downturn, a general view and analysis of the market shows it is still a struggle for the market as trading numbers remain low and space uptake slower.
A recent first quarter 2017 report on the retail market by MCO Real Estate shows that times are really hard for retail centres in prime locations, and worse for the newly delivered malls where achievable rents have fallen by up to 20 percent below asking rents.
Total gross leasable area for Lagos modern retail currently stands at about 118,000 square metres of space. Investors are constrained with increasing this space because of unavailability of the right land size at the right price.
“In the current challenging market, even Shoprite, the anchor tenant of choice with seven branches currently across Lagos has been forced to cut back on its growth ambitions. Development challenges of identifying large land sizes of about 50,000 square metres and above has led to an increase in the development of smaller malls on 15,000 square metres or less”, notes Munachi Okoye, CEO, MCO real Estate.
Scarcity and high cost of land in major cities are part of the reasons for the growth of retail market in what is now known as second tier cities of the country.
Resilient Africa is a South African firm that is in Nigeria with the intension to develop as many malls as they can within the shortest possible time, but has chosen to operate outside the due to land constraints.
Eddie McDonald, the company’s CEO, says “we are constrained by land availability in the big cities, especially in Lagos. Lagos can accommodate 20 malls but the problem is in finding the land. We cannot get the right land size at the right price to build the kind of mall we have in Owerri and even where you find one, the price will be too high”.
Land value in Lagos, according to him, is way too high to afford for retail development. “If we have to build in Lagos at that high cost of land, the rents will be too high and that will pose a big challenge to prospective tenants”, he says.
Okoye notes that the challenging market conditions mean that tenants are seeking rent reductions, fixed exchange rates, naira-based rents and shorter leases subject to negotiation.
“In addition, new malls face challenges of low trading numbers and slower uptake of space. Headline rents in prime locations stand at and $700 – $900 psqm, however in recent times, achievable rents have fallen by up to 20 per cent below asking rents. Total gross leasable area for Lagos modern retail currently stands at about 118,000 square metres of space”, he said.