Big malls eye SMEs as competition for tenants hots up

Tuesday June 14 2016

An artist's impression of Two Rivers mall on Limuru Road in Gigiri, Nairobi.

An artist's impression of Two Rivers mall on Limuru Road in Gigiri, Nairobi. PHOTO | COURTESY | NATION MEDIA GROUP 

By OTIATO GUGUYU
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Mall developers desperate to sell space are now targeting small businesses as competition intensifies.

Some developers are even enticing small business with loans to finance uptake of space and even partnerships to set up shop in the facilities.

Uptake of space among corporates has reduced forcing malls to look elsewhere for customers. According to the 2015 market update by Knight Frank, tenancy in malls fell by nearly one half last year confirming fears that supply of formal retail space is higher than demand.

Absorption of formal retail space declined by 45 per cent compared to the first half, largely because major retailers had already secured space in the upcoming developments,” the Knight Frank report read.

With customers hard to come by, malls are now coming up with creative ways to woo them. Some are even doing away with what  is known as goodwill, giving cheaper rates and may even be willing to reduce service charge in a bid to get tenants for the empty space.

“We are being lured to take up space and it’s something we can consider if the cost is low enough due to the effect of excess supply,” said entrepreneur Obado Obado, the founder of Café Deli a coffee shop and restaurant chain in Nairobi.

Knight Frank said big retailers are in a wait-and-see mode  to assess performance of new premises.

Deacons East Africa Chief Executive Officer, Mr Muchiri Wahome, says they have been getting invitations to view new spaces every other day but added that their selection has to be pegged on their marketing strategy.

“Actually we are spending one day per week here with my executive team visiting two new malls that are in the development mode,” Mr Wahome told Smart Company.

Stratification of mall spaces

He said the influx will lead to a stratification of mall spaces to accommodate SMEs at the lower grade level.

“I think what effectively would happen, like other developed markets, is the stratification of malls into A grade, B grade and C grade malls” he said.
Mr Wahome said the challenge for most mall operators will be in getting an anchor tenant.

Besides Uchumi, which is facing cash flow issues, anchors for big malls will now be the new entrants into the market with Carrefour, and obviously Nakumatt leading the pack and Tuskys as well as Naivas coming close by.

Entry of international brands will be key in securing mid-tier malls with an anchor tenant before they can then let other shops to small retailers.

“You will find the town supermarket beginning to get into the secondary malls which will be B and C malls. If you go up Juja Road I do not expect the big chains will necessarily go into those towns. It gives the opportunity for the smaller supermarkets to grow into the retail space that we have,” Mr Wahome said.

Getting a good rate for the space will be crucial. However analysts say it is important to factor in hidden costs such as the service charge, which have been growing substantially to cover costs of security following spate of terrorism attacks.

“My advice to any other small and medium size business is that if you want to go into these properties, you must try very hard to limit your rental exposure to a maximum of 10 per cent of your revenue. If you go beyond that then your numbers will start giving you a very big challenge,” Mr Wahome said.

Kenyan start-ups such as Cafe Deli and Amaica restaurant have the opportunity to give the new malls an ‘African’ face and get rates that can compete with the international brands that have taken up eateries in the properties.

“Food is an important thing; what is the mall offering? Unfortunately what we are seeing is a cut-and-paste thing so you find KFC and if it is coffee it’s Java. You don’t get restaurants like Kosewes and why aren’t they coming out to offer a difference?” Mr Wahome posed.

He said landlords should be looking out for those operators who have been very successful in holding middle class clout and, therefore, “the opportunities for those who operate food and restaurants from an African, Kenyan perspective professionally”.