Amid slowing economic growth, forex shortages and currency depreciation, retail rentals have doubled in naira terms since December 2014.

To retain tenants, retail landlords have had to offer significant rental concessions which include rent free periods, fit out allowances, pegged exchange rates, concessions on rents for limited periods and step-up lease agreements stipulating that the rental rate will increase by predetermined amounts at various points in the future.

“Local developers have taken a more flexible approach on accepting naira based rentals to retain tenants, meanwhile, landlords are actively looking at individual tenants whether in a new or established mall in order to accommodate their tenants’ cash-flow constraints. Not all tenants have been affected to the same degree,” says Bolaji Edu, Broll Nigeria CEO.

He points out that as a result of slow economic growth and shortage of foreign currency, local retail brands are starting to take-up space at shopping centres especially outside prime locations in Lagos.  These retailers require smaller spaces and often struggle to pay the high rents being charged in malls located within prime nodes.

Broll Nigeria manages seven shopping centres countrywide including Ikeja City Mall and Circle Mall in Lagos.  Some of our upcoming retail developments include Asaba Mall with a GLA of 9,300m2 and located in Delta State. This mall is scheduled for opening in December 2016 anchored by Shoprite. Twin Lakes anchored by Carrefour is expected to open in July 2018 in Lagos. Others include Royal Gardens Mall in Lagos, Silver Valley Mall in Port Harcourt and further afield in Cameroon, Douala Mall in Douala.

According to the Nigerian  Retail Market update Q2 2016 report, despite the economic challenges, a total of 19,000m2 of retail space was added to the core and secondary markets during the second quarter with the opening of centres including Onitsha Mall and Maryland Mall.

Other investors continue to see opportunities in the Nigerian retail sector with South African retailer Pick n Pay announcing their entry into the market through a joint venture with Lagos-based AG Leventis, an established local retailer.

“Local and international investors into Nigeria have typically always taken a long-term view and they are being realistic to the current economic climate and adapting their business and operating models.”

Although risks are still abundant with barriers to entry remaining high, Edu says it is fair to say that Nigeria still has specific political and economic risks and outside of Lagos it is difficult to develop without the support of the State Government.

Developers and investors now see the benefit of having a strong local partner rather than trying to enter the market by themselves, examples of these retailers include the likes of Pick n Pay and Leventis and Carrefour and CFAO. Investors are more cautious about their expansion plans and some may look at limited entry rollout or smaller developments, he points out.

“Nigerian based private equity funds and insurance company based investment funds still have a strong investment appetite for well let properties with rebased rents, however, these opportunities are rare and where they can be found, there is a significant gap between the seller and buyer pricing aspirations,” adds Edu.

• Marc Philips