Real Estate Investor Magazine South Africa March/April 2019 | Page 42

RETAIL IN AFRICA
Kenya’s retail sector
diversifying amid a
changing market
K
enya’s retail sector is diversifying with the entry of new
players and international brands into the market. This
is despite the retail sector growing at a ‘lethargic rate’
compared to economic growth in the East African hub in
2018.
The retail sector has been impacted by increases in taxes and
government regulations following the drawn-out elections of
2017, despite the Kenyan economy growing at a fast rate. GDP
is expected to grow by 5.9% for 2018 overall, on the back of
improved weather conditions and a stabilising macroeconomic
environment.
These are some of the key insights contained in the latest
Nairobi, Kenya Retail Snapshot report (H2: 2018) by Broll
Property Intel, the research division of leading property
services group, Broll.
Head of Research and Valuations at Broll Kenya, Vivian
Ombwayo, who contributed to the report, comments: ‘While
Kenya recorded strong economic growth in 2018, the retail
sector grew at a slow rate. Increases in taxes and business
regulations as a result of Kenya’s new Finance Act (2018) may
have played a role, but it remains to be seen to what extent this
act will affect the retail and broader real estate markets.’
The Finance Act was signed into law in September 2018.
One of the big changes is the introduction of 8% VAT on
petroleum products, which was previously VAT exempt.
Ombwayo says that the increase in fuel costs is likely to induce
a ripple effect on food and other prices. However, a positive
for the property sector is in the Real Estate Investment Trusts
(REITs) space, where transactions related to the transfer of
assets into REITs are VAT exempt.
According to Ombwayo, the growth of aspirational
consumers and Kenya’s middle class has influenced Food and
Beverage retailers to diversify into Nairobi’s CBD. She also
says that international fashion brands such as Hugo Boss
and Turkey’s LC Wakiki, as well as French sports retailer
Decathlon, have a growing presence in Kenya.
The French supermarket Carrefour is expanding in the
country, while South African retail giant Shoprite opened
its first Kenyan store in December 2018. Another South
African brand, Game, which is owned by US-based global
retail heavyweight Walmart, is also expanding as are other
supermarket retailers.
There is an estimated 526,000m² of formal retail supply in
the Kenyan capital of Nairobi, according to the Nairobi, Kenya
Retail Snapshot report (H2: 2018). This is up 5% from the
first half of the year when supply was at around 502,000m².
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MARCH/APRIL 2019 SA Real Estate Investor Magazine
Ombwayo says community centres account for some 39% of
this, followed by small regional and neigbourhood centres,
each at 24%.
She says retail development in Kenya is expected to pick
up as the country stabilises from a macroeconomic standpoint
following uncertainty caused by the country’s drawn-out
election in 2017. A new development to watch out for is the
Waterfront project in Karen, which will include 19,000m² of
retail space for which Broll Kenya is managing the leasing.
‘Several other retail projects are in the preliminary stages of
planning and development, for example the 28,500m² Beacon
Mall, but investors are still somewhat cautious at the moment.
A new trend in Kenya seems to be mixed-used developments
that will include office, retail and hotel space. Major mixed-
used projects such as The Pinnacle and Le Mac, are ones to
also watch out for,’ says Ombwayo.
She adds that despite the Central Bank Rate in Kenya
dropping to 9% in July 2018, the weighted lending rate on
commercial bank loans was still high at just under 13%. This
makes it difficult for developers to borrow locally and has
resulted in mainly dollar-based funding coming from outside
of the country for real estate developments. Dollar based
funding had its own challenges, with local retailers having to
deal with dollar-based rentals.
Broll’s latest Kenyan retail study reports a shift in rent
charges from largely a space occupied basis to either turnover-
based rent or a combination of turnover rent and base rent.
“Due to the demise of a major local Kenyan food retailer -
Nakumatt Supermarkets - last year, most landlords have taken
a cautious approach by leasing smaller spaces to more than
one anchor tenant at retail centres. Nakumatt closed dozens
of stores, but a lot of this space was taken up by competing
retailers,” notes Ombwayo.
She says the minimum lease period for securing retail space
in Kenya is five years and one month, but notes changes may
be on the cards.
Elaine Wilson, Divisional Director of Broll Property Intel,
advises that the Broll Nairobi, Kenya Retail Snapshot (H2:
2018) is a helpful tool for both investors and occupiers to have
a brief understanding of the country’s prevailing retail market
conditions. She adds that Broll’s Intel department is proud to
provide the market with research intelligence and that this is
just the tip of the iceberg in terms of what the Intel division is
capable of offering.
For the full Nairobi, Kenya H2: 2018 report go to www.
broll.com/publications