Source: Cytonn

Nairobi has grown into the largest shopping centre in Sub-Saharan Africa outside of South Africa with 6.5m square feet of retail space. The city accumulated more than 4.5m square feet over an 8-year period growing from 2m sqft in 2010 to 6.5m sqft in 2018 and is projected to reach 7.8m sqft by 2020.

According to Knight Frank Shop Africa report for 2018, growth in retail space has proceeded at a compounded annual growth rate of 15.9% over the past eight years. Growth in the city’s population and a growing middle class who are increasingly shopping in malls has raised the demand for retail space.

However, developers have been churning out malls at a higher pace than the market can take in, leading to an oversupply. The developers have been encouraged by the city’s improving infrastructure and changing lifestyles as more Kenyans gain access to disposable incomes.

A wealth report released yesterday by global wealth monitoring group Wealth-X ranked Kenya as one of the top 10 countries with the fastest growth in the number of ultra-high net worth individuals, a reflection of the changing income dynamics in the Kenyan populace.

In their latest retail report, Cytonn Investments project that supply of retail space will have grown to over 7.8m sqft with a 2-year CAGR of 9.8% for the two years and 14.3% CAGR for the 10-year period since 2010. The projected declining growth in supply shows developers reaction to the current oversupply.

In the past, Kiambu and Limuru road areas have been favourites for investors seeking to supply retail space to Nairobi’s residents due to accessibility and good roads, and proximity to middle and high income suburbs. Currently, the two locations account for 22% of total retail space in the market with 1.3 million sqft according to the report.

Related; One of Nairobi’s most iconic malls is in the works

Mombasa road and Eastlands have also accumulated substantial retail space amounting to 14% of the total. So far, CBD and areas around Kilimani, Kileleshwa and Lavington have seen the least intrusion by shopping malls with 1.3% and 5.6% of the total respectively. However, the proposed construction of The Beacon, to be completed in the next 3 years is expected to increase mall space near the CBD.

Kiambu County has the largest supply of mall space with 667,000 sqft of space and a deal pipeline of 60,000 sqft due to the upcoming Limuru mall. The county, which has been ranked the wealthiest in the country, boasts a large urban population and a booming real estate market.

Other counties with significant market share in the Nairobi metro region include Machakos with 463,000 sqft and Kajiado with 120,000 sqft.

ReadRetail sector under pressure as industrial property presents opportunities

The increase in retail space has created demand for other real estate sectors especially logistics property but it has also resulted in a drop in rental yields as retailers compete for tenants. In 2017, the rental yield dropped by 1.9% with increasing vacancy rates which was compounded by the exit of Nakumatt from many locations.