Malls: Karen and Westlands the best locations

Karen and Westlands have the highest returns for mall developers, scoring highly in terms of rent and occupancy. Cytonn Investments has placed the two suburbs as the second and third most viable locations to set up a mall after Kilimani. The average rent per square  foot is Sh231.4 in Westlands and Sh216.7 in Karen.

At Sh231.4 per square foot in rent, Westlands is 34 per cent more expensive than Eastlands, where tenants pay an average Sh148.2 per square foot.

The evaluation by the investment firm comes amidst fears that Nairobi has an oversupply of malls and developers could lose out for lack of tenants.

“The high yields in Karen can be attributed to high occupancy rates, and the second highest rents in the Nairobi metropolitan area, with malls charging a premium for location and spending power of residents,” Cytonn said in a statement.

“As per our analysis of the retail market sector, we considered four metrics — yield rates, current mall supply, income/GDP per capita and upcoming mall supply— to provide a comprehensive ranking of the viable retail space opportunity according to location and performance.” said Johnson Denge, the Site and Acquisition Manager at Cytonn Investments.

The most viable area to set up a mall in Nairobi is Kilimani due to a low supply of retail space, high rents and a high earning population that spends at formal retail centres.

Mombasa Road is the least attractive due a high supply of retail space at low yields and low purchasing power in the area.

In April, Britam Asset Managers warned that Nairobi was facing an oversupply of mall retail space that could hit developers.

“Beyond the Two Rivers Mall expected to open by the end of this year, no further retail space will be required in Nairobi, as there will be oversupply,” Britam Asset Managers CEO Kenneth Kaniu said.

Nairobi already has 391,000 square metres of mall space, with an additional 470,000 square metres in the pipeline, according to Knight Frank’s 2016 Sub-Saharan Shopping Centre Development Trends.

Cytonn has, however, downplayed the glut fears saying that there are  still opportunities in the capital city for areas like Kilimani, Westlands and Karen.

“Consumers are showing a preference for formal retail over the informal market, especially due to the convenience that the stores allow them in product provision. The sector is thus headed for continued growth. The opportunity is still largely in Nairobi despite its increasing supply in some nodes,” the company said.

Besides an oversupply of space, malls could also face competition for shoppers from online retailers like Jumia, OLX and Kilimall, further eating into their viability.

Outside Nairobi, the Mt Kenya region has the best returns for mall developers while Eldoret has the least on account of low rents.