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Mushrooming of malls in Kisumu leads to saturation

Thursday June 27 2019

Lake Basin Mall

Lake Basin Mall in Kisumu in this photo taken June 25, 2019. PHOTO | TONNY OMONDI | NATION MEDIA GROUP 

VICTOR RABALLA
By VICTOR RABALLA
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Shopping malls. They are everywhere you look, mushrooming in all major towns in the country. Kisumu County has not been left behind, but the unrelenting construction of these properties is gradually turning into a poisoned chalice for investors, who have sank millions in capital into the venture, to capitalise on the alleged expansion of the middle class.

CONTAINERS

So intense is the mall bubble that supply is threatening to reach saturation, which is made worse by fabricated containers that are edging out established malls as traders seek cheaper spaces for stalls, shops, offices and storage depots.

Less than a decade ago, Mega Plaza, United Mall and Swan Centre were the major commercial properties that served the lakeside city.

Not anymore. Kisumu has experienced a proliferation of malls, which have more than doubled following the entrance of new players and expansion of some as they join the list of competitors, leading to shrinking demand for commercial properties.

Following the completion of the Sh4.2 billion Lake Basin Mall, other shopping centres that have entered the scene include Mega City and West End, as well as Tuff Foam Mall, still under construction.

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According to the 2018 Kenya Retail Sector Report, Kisumu is oversupplied by 200,000 square feet, yet additional mall spaces are coming up, a factor that is turning out to be an advantage for those looking to rent space. While Mega Plaza Mall completed its expansion programme over two years ago, Tuff Foam Mall is being extended by five stories. There is also Unique Mall, which is under construction right in the centre of the business district.

Unfortunately, the supply of space seems to have exceeded demand, leading to low occupancy levels, with some malls reporting as low as 40 per cent occupancy.

TOUGH TIMES

Mr Johnson Denge, a manager at Cytonn Real Estate, observes that Kisumu is facing low disposable income, which means that landlords could be in for tough times if the relentless construction of shopping complexes is anything to go by.

“Kisumu is experiencing a supply glut, and the pressure is now piling on property owners to lower the lease fees and rental prices,” says Mr Denge. “To keep afloat, a number of landlords have resorted to offering incentives to entice new tenants.”

The monthly average rent for space in most shopping malls in Kisumu is between Sh80 and Sh150 per square foot.

Lake Basin Mall, which charges one of the lowest rental prices at Sh80 per square foot, does not, however, include service charges and value-added tax, says George Asigoh, a manager with Charcon Properties, which manages the multibillion-shilling property.

The mall, owned by the Lake Basin Development Authority (LBDA), is conveniently located near the Mamboleo Junction on the Kisumu-Kakamega highway.

DN body text: Though the 60,000-square-metre shopping complex was completed in 2017, it has not been launched, because the owner is yet to get a reliable anchor tenant.

The mall, which has already attained 40 per cent occupancy, hosts a three-star hotel, showrooms, a tyre centre and a recreational park. Tuskys supermarket was initially to occupy the most strategic location in the mall but later withdrew from the deal after securing space at Mega Plaza following the closure of Nakumatt.

MAIN TENANT

LBDA chairman Cavince Owidi has, however, indicated that the main tenant will be picked from among French retail chain Carrefour, South Africa’s Shoprite and Choppies from Botswana, which have all expressed interest in taking up the space. Meanwhile, Mega Plaza, located on the busy Oginga Odinga Street, and which was redeveloped and is now the tallest building in the city, is also struggling to get tenants for the additional space. After signing an agreement with Mega City, the planned entry of South African retailer Game Stores promises to overturn the mall’s downward trend following the dwindling fortunes of the troubled Nakumatt, which closed shop.

Footfall in shopping malls over the review period rose mainly owing to the revival of anchor tenants in the retail centres replacing Nakumatt.

The mall, which stands next to the infamous Kachok dumpsite, could also reap big from the relocation initiated by Kisumu County. Western Kenya’s biggest landfill, which is being transferred at the cost of Sh200 million, is being transformed into an eco-park of indigenous trees and a children’s playground.

Worth noting is that the adjacent Vic Hotel has uplifted the status of Mega City Mall, located on the Kisumu-Nairobi highway.

While boosting the number of retail chains that have recently set up shop in Kisumu, the opening of Chandarana Food Plus Supermarket at West End Mall on Jomo Kenyatta Highway has given a new lease of life to the property, which was deserted following the closing of Uchumi supermarket.

COMPETITION

The mall, which hosts Acacia Hotel, has become popular with county government employees as well as civil servants in the government offices situated in the vicinity.

Though still under construction, the adjacent Tuffoam Mall has taken a big leap by attracting tenants such as Safaricom, Aon Minet insurance, Nation Media Group, Bata, Masinde Muliro University and Standard Chartered Bank.

Mr Eric Ounga, the proprietor of Ounga Commercial Agencies, a property development company based in Kisumu, is optimistic in the face of the present reality, saying that the future of malls looks promising.

“The focus should not be on the present but rather, the future. While a majority of people are looking at the current value of malls, the fact that a significant percentage of the space is vacant does not mean that the properties are running at a loss,” he says, pointing out that as the population and the economy continue to grow, the outlook will improve in another year or two. He adds that the entry of international retailers in the region could tilt the fortunes for investors.

He further notes that most landowners are developing their property in speculation, and their value is bound to significantly shoot up in the next three to five years without even considering the rental income.

“When United Mall was coming up, many were pessimistic and thought it was not a viable venture,” he says. “Now it has grown to become the busiest outlet as we speak. Today, it has one of the highest footfalls,” he said.

The property developer further expressed optimism that Lake Basin Mall, the biggest shopping centre in the western region, will take its space and provide a worthy competition for the players in the sector.

PRODUCTION

Kisumu County Governor Anyang’ Nyong’o, in an interview with the Nation, said that there is great hope for investors who are interested in investing in the lakeside city, coming at a time when there is a good working relationship between opposition leader Raila Odinga and President Uhuru Kenyatta.

While noting that Kisumu is dominated by the service industry, Prof Nyong’o said his administration is focused on corresponding the growth of the production industry to support the critical sector.

“The availability of services like banking and malls can best be supported with a vibrant manufacturing industry, which is the crucial engine for sustaining economic growth and development, job creation and poverty alleviation,” he said.

As one way of supporting tourism and investment in the western Kenya circuit, he pointed out that the county, in partnership with the national government, has embarked on an initiative to regenerate the lakefront in a bid to come up with an attractive view of the lake.

The redevelopment of the lakefront, to cut across the yacht club, Kisumu port and the golf club, is envisaged to have buildings near Lake Victoria reconstructed to face the waterfront.

To kick-start the process, tourism Cabinet Secretary Najib Balala said the government had set aside Sh300 million for the mega project, which is expected to greatly benefit businesses next to Africa’s largest freshwater lake. Governor Nyong’o noted that the putting up of an industrial park at Ombeyi in Muhoroni, the revival plans for the Kisumu port and the scheduled extension of the standard gauge railway will pave the way for new investors to set up shops in the lakeside city. “With these kinds of infrastructure, the … mall owners can rest assured as residents will have steady income that will enable them to shop in the malls,” he said.

OCCUPANCY

A report by Cytonn Real Estate released last year showed that the key cities — Nairobi, Mombasa, Kisumu, Eldoret and Nakuru — have a total mall space supply of 15.3 million square feet, against a demand of 14.1 million square feet, resulting in an oversupply of 1.2 million square feet.

Nairobi, Eldoret, Kisumu and Nakuru are oversupplied by 2 million, 0.3 million, 0.2 million and 0.1 million square feet, respectively. Kiambu, Mombasa, Kajiado, Mt Kenya and Machakos are undersupplied by 0.6 million, 0.3 million, 0.2 million, 0.2 million and 0.1 million square feet, respectively.

According to the report, Kenya’s retail sector performance improved in 2018, recording average rental yields of 8.6 per cent, 0.3 per cent points higher than the 8.3 per cent recorded in 2017, and average occupancy rates of 86 per cent, 5.8 per cent points higher than the 80.2 per cent recorded in 2017.

It further established that Mombasa and Mt Kenya are the new best regions for retail real estate development because of high demand for retail space of 0.3 million and 0.2 million square feet and anticipated attractive yields of 8.3 per cent and 9.9 per cent, with occupancy rates at 96.3 per cent and 84.5 per cent, respectively.

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