Oversupply, Tough Economy Continue to Push Down Retail Rents in Kenya

Rents for prime retail stores in Kenya declined by  4.2 percent in the second half of 2019 to KSh466.44 (US$ 4.6) per square foot per month, according to Knight Frank, a  leading independent real estate consultancy. 

In Kenya’s real estate market performance over the second half of 2019 findings, “The drop was mainly attributed to an oversupply of retail space in certain locations and reduced consumer spending due to the current economic climate.”

In the first half,  rents for prime spaces decreased by 5.9% in the period to US$4.8 per square foot per month.

The findings collaborate with Cytonn Investment’s finding that there is an oversupply in the retail market currently at 2.8 million SQFT and they expect a drop in retail returns in 2020, by 0.4 percentage points.

“We expect occupancy rates to decline by 2.2 percentage points to 73.7 percent and rents to soften by 2.1 percent to Ksh 171.9 from Ksh 175.5 in 2019,” says Cytonn.

 These factors have resulted in the retail sector remaining a tenants’ market, with landlords having to increasingly make concessions to compete with other retail centres for occupiers. 

During the period under review, occupancy levels for retail averaged 77 percent, with the more established malls recording higher occupancy levels of over 90 percent.  

Footfall for most retail centers in Nairobi decreased over the review period due to competition amongst the increased number of malls, reduced consumer spending power and growth of e-commerce. 

Major developments in the pipeline include the 280,000 square feet Comesa Mall in Eastleigh and the 50,000 square feet Phase III of City Mall in Nyali.

There was also a notable decrease in the number of shopping center developments opening in Nairobi and its environs over the period.  

Local and international supermarket chains continued to make strategic moves, expanding their local presence and establishing a stronger footing in the retail market. 

American sports and footwear retailer Nike opened a store at Westgate Mall in Westlands, while Turkish footwear and accessories store Flo opened at The Hub in Karen.