The future of retail investment is in the development of convenience outlets, says Fusion Capital report

The future of retail investment is in the development of convenience outlets, says Fusion Capital report

Private equity firm, Fusion Capital sees convenient retail as having its place in the Kenya real estate play.

Over the past 10 years investors have been scrambling to develop state of the art large scale retail developments to serve Kenya’s widely coveted “growing middle class”. However, concerns are emerging around the viability of some of these new retail projects – especially in and around the capital, Nairobi.

Empty prime retail space is becoming a common site in new and old malls alike. This is especially true in malls where anchor tenants are scaling back operations – as we have seen with Nakumatt in recent months.

“We believe this increase in empty retail space can be attributed to three main factors: Slowdown in Economic Growth The recent prolonged drought, the tumultuous 2017 general elections, and a slowdown in private sector lending as a result of interest rate capping last year, has led to a slowdown in economic growth and consequently a decline in main stream consumer spending,” the group said following the release of the Fusion African Monitor (FAM), a monthly sub Saharan report published by Fusion Capital Ltd.

Over supply of similar products

Save for a-few exceptions, developers have failed to supply the market with anything new in the retail sector. Take Limuru road as an example, shoppers have three world class malls within a 5-minute drive of each other.

Each mall offers a premium shopping experience, a wide variety of line shops, and both high end and affordable food outlets. Consumer shopping habits We also believe that Consumer shopping habits are changing.

Shoppers are increasingly forgoing weekly, two hour trips to major malls in favour of daily shopping in convenience stores – which offer either proximity to work or ample parking, extended business hours and short checkout lines. All things attractive to working families committed to long working days and busy social lifestyles.

It is for these reasons that Fusion believes the future of retail investment in Nairobi is in the local adaption and development of a convenience retail outlets.

Convenience retail outlets – common in Europe and the US – usually consist of a small anchor store with ten or less complimentary line shops set in either a compact city centre location (close to large office developments) or spacious leafy locations on the outskirts of major cities (usually with access to major commuter highways).

Convenience stores are designed for quick and easy shopping with anchors selling mostly fresh groceries and precooked meals, and “frequent use” line shops including pharmacies, coffee shops and restaurants.

According to Fusion Capital, convenience retail outlets are easy to plan, easy to build, and require significantly less capital than a standard mall. They also usually have lower electricity costs, maintenance costs, rates and taxes, and require less labour allowing rents to be lower and savings to be passed down to customers.

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