Developers Spruce Up Malls, Scrap Goodwill Charges to Woo Tenants

Floor space is not selling as fast as anticipated, forcing Realtors to slash goodwill that previously ran into millions of shillings, hire interior designers to spruce up the buildings, set up indoor entertainment spots and offer freebies.

The glut in mall space has changed the way developers and operators treat tenants as they seek to edge each other out for some scraps of profitability in the abundance of empty mall space and falling tenancy.

Some owners are even opting to occupy huge spaces with their own businesses.

“Landlords should be ready to go business unusual. Failure to consider the target population which has a direct bearing on spending power…the non-performing enterprises are doomed to close down and consequently the vacancies that have been witnessed in various malls arises,’’ said Njeri Njoroge, a senior property manager at real estate company Regent Valuers International Kenya.

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

By producing an almost same product, the mall industry has pushed itself into cannibalization, a concept that refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producers.

Goodwill charges

Ms Njoroge said that some practices that were a common place just a few years ago are no more with the customers acquiring the upper hand in bargaining.

“The landlords are no longer keen on asking for goodwill charges to have a competitive edge,” she said.

Muchiri Wahome, Deacons East Africa chief executive officer, said with the rate of developments, cannibalization has already begun taking effect.

Mr Wahome, who runs 10 brands such as Truworths, Mr Price, Adidas, Identity, 4U2, Angelo, Life Fitness and baby shop under the East African franchise, said that landlords will have to listen to their clients and change business models to make any sensible profits.

“Obviously, the business model is going to be put under pressure since some developers have gone ahead and put up malls without talking to retailers and understanding who are going to be their tenants,” Mr Wahome said.

Lower rents

The first casualty will be the rents. For investors interested in taking up spaces, the question will be if the malls are affordable.