Low purchasing power pose fresh challenges for retail market
By The retail market in Nigeria is set to remain challenging, and this goes beyond the economic recession that reflected some fragile aspects of the market and showcased structural issues with the economy.
Purchasing power and living standards, which are major drivers of retail market growth, are still below expected levels in the country, placing increased pressure on the market.
The implication of this is that both landlords and retailers have tighter rope to walk, and this is going to affect mall expansion and further growth of the market. Already, landlords are under immense pressure from tenants seeking concessions and other considerations, including downward review of rents.
Evidently, the retail is still smarting from the economic recession, which impacted market fundamentals that have direct bearing on its growth, including household income and consumer purchasing power that were badly eroded; high exchange rate that impeded imports, low tenant pool, which led to high vacancy rates at the malls.
Unlike the office space segment of the market, the level of enquiries in the retail market has remained relatively constant on the backdrop of lingering sentiments about market conditions with some retailers remaining on the sidelines until the market recovers fully.
A new report by Broll Nigeria notes that the few enquires that happened in the first quarter of 2018 were driven by the fashion and accessories retail sub-categories. On average, enquiries fell in the 50 square metres – 60 square metres size range.
While concluded transactions were evident in the food and beverage as well as the fashion sub-categories, these transactions ranged from 20 square metres – 150 square metres, with the food and beverage category recording the larger end of the size take-up.
These are strong indications that retailers now favour small size spaces, meaning that both existing and intending investors that have to more creative and innovative and need to rethink their project size.
Nnenna Alintah, a researcher at Broll, notes that in spite of the challenges, the first quarter of the year recorded new entrants to the market, including international food brands such as Krispry Kreme and Pinkberry under the franchise model, adding however that the fashion sub-category is predominantly driven by local fashion retailers as international brands are yet to revive their interest in the Nigerian retail market.
In the core markets where the likes of The Palms, Ikeja City Mall, Novare Lekki Mall, Circle Mall, etc, are found, very large spaces are difficult to let as retailer-sentiments are still recovering and this has continued to cripple the ability of some landlords to drive up occupancy levels within their malls.
According to the Broll report, average asking rent for 100 square metres – 200 square metres is around $60 per square metre per month. The more established and better performing malls have maintained high asking rents ranging between $80 per square metre per month – $90 per square metre per month whilst malls delivered relatively recently attract lower average asking rents ranging between $40 per square metre per month – $60 per square metre per month. Vacancy levels have been recorded at approximately 16 percent.
But expectation is that the Central Bank of Nigeria’s (CBN) efforts to maintain the value of the naira through an increase in the foreign exchange reserve level as well as liquidity in the foreign exchange market could have a positive impact on retailer’s decisions.
“On a more positive note, leisure retail is envisioned to contribute tremendously to activity within the market. Strong demand for more leisure focused schemes has been observed and as such it is anticipated that more leisure focused centres will begin to pop-up in the market,” Alintah assures.
The post Low purchasing power pose fresh challenges for retail market appeared first on BusinessDay : News you can trust.