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Retail market records increased interest in Q3 2017

Despite the challenges arising from a hash operating environment, the retail market in Nigeria in the third quarter of this year witnessed increased interest from international retailers, which, in some cases, translated into active negotiations as well as concluded leasing transactions.

Though general activity in the market remained sluggish, enquiries and demand from retailers from the Far and Middle Eastern countries increased significantly. Miniso provides a case in point as one such retailer from the Far East looking to establish a firm presence in the retail market.

A new report by Broll Nigeria reveals that Miniso commenced trading in the third quarter in a number of shops across core locations, taking up close to 4,000m2 of retail space with plans to open additional stores in other secondary markets.

Over the past 12 to 18 months, the macroeconomic challenges that faced the country resulted in reduced demand from European retailers and US. As these retailers adopt a wait and see approach, retailers from China and Turkey have intensified their interest in the Nigerian retail sector.
“From a local perspective, existing retailers continued to remain cautious given their experience in the market. Many continue to reassess their strategies, halting expansion plans into newer schemes, simultaneously consolidating operations in the best performing locations and malls in which they have a presence,” noted Nnenna Alintah, Head, Occupier Services at Broll.

During the quarter, vacancy rates dropped from 58 percent to 30 percent and 41 percent to 38 percent in core and secondary locations respectively, but Alintah pointed that this reduction in vacancy levels came on the back of longer negotiation periods and the willingness of landlords to consider and extend concessionary leasing conditions.
“Already established schemes such as Palms Lekki and Ikeja City Mall continue to benefit from first mover and locational advantages, commanding the highest rents and recording near 100 percent occupation levels”, adding that average asking rentals for spaces between 100 square metres and 200 square metres are currently around US$44 per square metres per month and US$30 square metres per month in core and secondary locations respectively.

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Landlords did not find it easy within this period and so, in order to remain competitive, maintain and drive up occupancy levels in malls, most of them across the market have continued to utilise concessions to stay attractive. This has especially been the case in recently opened malls that have increased the supply of retail space across the market.

“Concessions which are typically geared towards reducing retailers’ initial capital outlay are adopted differently by landlords and continue to be extended on a case by case basis.
“They range from lower rents and longer rent-free periods to lower and fixed exchange rates. These tend to offer more certainty around rents, which are usually stated in US dollars but payable in naira. Some landlords have also been willing to consider different rent structures including payment in installments and stepped rentals,” she said.
The outlook for the retail sector is not so promising. The sector has continued to face some challenges despite the recovery recorded in wider macroeconomic indicators. The effects of a fairly stable naira, reduced inflationary pressure and the economy’s emergence from recession are yet to have significant ripple effects on the retail sector.
We expect that developers who are keen to commence new projects will adapt their plans given the realities of oversupply, a shallow tenant pool and slower leasing activity in the market. Mall sizes are likely to be smaller than previously seen, incorporating a wider range of uses in their concepts and designs.
Over the next 3 to 6 months, about 28,000square metres of retail space is anticipated to be supplied across the market. 80 percent of this supply is expected in core location with the delivery of Gateway Mall and the retail element of Central Office Park in Abuja. This will fuel the existing oversupply in the market hence putting further pressure on rentals.

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