Kenya shopping mall boom continues despite bubble fears

Garden City Mall on Thika Road
Shoppers at the Garden City Mall on Thika Road in Nairobi. PHOTO/FILE
Construction of large shopping malls has exploded across Nairobi and other major towns in Kenya, with developers still confident about demand for their facilities despite widespread oversupply fears.

Real estate analysts have recently pointed to market saturation especially in the capital Nairobi, but some mall owners and real estate managers are now justifying their investment plans by pointing out that the demand for high-end retail space will most likely go up in coming years thanks to the emerging mall culture in Kenya.

With this in mind, wealthy property developers are increasingly trying to outdo each other in terms of scale and grander of their developments, so much so that aside from shopping and eating, one can now find facilities such as water play parks in malls.

The upcoming Two Rivers Mall in Nairobi is a good example of such projects. Located on Limuru Road, between some of the city’s most affluent areas, the mall will have 62,000 square meters of retail space and a water park area, complete with dolphins!

When it opens its doors on February 14, the Sh17 billion facility will unseat the 50,000-square-metre Garden City Mall on Thika Road as the largest mall in East Africa – barely two years after the latter clinched the title.

Two Rivers Mall, which has attracted a host of international retailers including Austrian jewellers Swarovski and Paris-based Carrefour (the world’s second largest retailer after Walmart), is owned by a consortium of investors, among them Chinese firm Avic, Centum Group, UAP Old Mutual and ICDC.

Avic has invested Sh6.4 billion into the project, an indication that foreigners are keen to stake money on the local shopping mall boom.

Foreign investors
This is especially true considering that several other huge malls, including Garden City, which will be valued at Sh22.7 billion on completion of its phase two next year, have been financed and developed by foreign investors.

Recently, a slew of big deals have emerged mainly in Nairobi, Kisumu, Eldoret and Mombasa which is seeing several malls sprouting countrywide from Lake Basin Mall in Kisumu across to The Hub Karen in Nairobi.

The Sh2.5 billion Lake Basin Mall, which is located on the Kisumu-Kakamega road, is being undertaken by the Lake Basin Development Authority and is scheduled to unseat United Mall as the biggest mall in the lakeside city.

On the other hand, The Hub Karen, a Sh4 billion facility which sits on a 20-acre site in Karen – 20 kilometres from the Nairobi city centre, became the country’s second largest mall after Garden City when it opened its doors last year.

Other notable malls that are either underway or have been completed recently include Safaricom’s Crystal Rivers in Athi River, K-Mall in Komarock, Nairobi, Thika Road Mall at Roysambu, Juja Mall, UniCity and Ananas Mall – all of which are located on Thika Road.

According to a recent report by real estate firm Knight Frank, which is currently overseeing 250,000 square feet of space, Kenya will soon witness completion of an additional 1.8 million square feet of shopping malls in Nairobi along major highways and wealthy neighbourhoods.

Knight Frank said that despite the increase in the number of shopping malls, demand for retail space was still growing due to the flourishing mall culture.

Better yields
Property managers have also said that investors are betting on retail space since it attracts higher rental yields than office or residential properties.

“Basically high net-worth individuals are building these malls. They are moving away from residential projects to malls, which are quite very profitable,” says an agent who spoke on condition of anonymity for fear of losing business.

Broll Property Groups lease consultant Robert Broll is also upbeat about Nairobi’s upcoming malls saying the city has enough depth in terms of population and its ability to buy goods and pay for services.

However, Britam Asset Managers (BAM) chief executive Kenneth Kaniu has expressed reservations over mall assets – arguing that investors risk waiting for many years to enjoy returns on investments.

Mr Kaniu would rather see developers establishing strip convenience stores along the major highways to serve travellers.

Nairobi-based investment banker Edward Burbidge also has reservations about malls development and he believes that the rapid supply of retail space is likely to see the commercial property market deflate a little in the near future.

Mr Burbidge earlier told the Economist magazine that Kenya shopping malls were being built in places where the population density is far too low to support them.

There is also a group of people who believe that online shopping, which is slowly gaining currency in the country, will exert pressure on brick and mortar stores especially those targeting youthful customers.