Economy
Recession: Mall Developers, Tenants Consider Rent Renegotiation
By Maureen Ihua-Maduenyi
With the current economic crisis creating challenges for all sectors of the economy, the country’s rapidly growing retail sector is struggling.
Apart from a few malls, most retail facilities in the country were funded by private equity firms that got their funding mainly from foreign sources; and by virtue of this, they are currently facing a lot of challenges as many of their tenants who sell mostly foreign products, are finding it difficult to stock up or fit out in new malls due to forex scarcity.
Findings by our correspondent indicate that many tenants are no longer paying rents in some of the big and expensive malls, because the rents are high due to the naira to dollar exchange rate, and most of the retailers don’t have enough liquidity to stock up due to the forex restrictions, high costs and problems associated with importation.
According to a source, who did not want to be quoted, some tenants owe as much as 15 months’ rent and developers cannot ask them to vacate the malls as empty shops in a mall is an indication of a failed project.
Our correspondent gathered that the landlords were becoming more creative to keep their tenants in business and the malls functioning.
It was gathered that one of such creative ways was to ask tenants who owed rents to pay the service charges.
“If the rent is paid and the service charge is not paid, it becomes the landlord’s headache to settle the service charge. So, he will rather the tenants pay their service charges to keep the malls running,” a source told our correspondent.
An estate surveyor and valuer, Mr Rogba Orimolade, said majority of the functioning retail facilities were struggling to survive.
“A lot of these retailers are those who rely on not just forex, but goods that they bring in from overseas, and they are struggling. The market itself is in recession, so a lot of the malls are caught in the middle. Some of the tenants are leaving; some are trying to adjust and see what kind of local products they can stock,” he said.
According to Mr Orimolade, investors are also trying to make tough decisions such as pegging rents in such a way that tenants will not be discouraged, with some landlords already giving discounts, while some are reducing their rates against the Central Bank of Nigeria’s naira to dollar rate.
He explained, “There are so many ways that a lot of promoters of these malls are becoming creative with the way they ask tenants to pay their rents and it is only realistic they do that. From the way things are going, most of the malls that are going to be coming into the market now will source their funding locally and ensure that the rate they are charging is strictly in naira.
“Foreign investors also have to adapt, that is the reality. Sourcing for offshore funds is no longer realistic.”
He said that apart from facilities such as the Ikeja Mall and The Palms, both in Lagos, that were doing well in spite of the economic realities, because of their locations where retailers were eager to get shops, many others were groaning as a result of the economic crisis.
Mr Orimolade said, “Apart from some whose promoters who were able to read the market on time and focus more on Nigerian companies to take up spaces, many malls in Lagos and other parts of the country, especially those built with offshore funds, are struggling and have 30 to 40 per cent of their shops vacant.
“Their projections were that a lot of those foreign companies would take up space but those companies backed out, some even relocated from Nigeria.”
Rents in malls across the country go for as high as between $100 and $120 per square metre monthly; and are mostly paid quarterly, with many of the retailers taking spaces from 60 square metres upwards.
The Consultant, Retail Leasing, Broll Nigeria, Mrs Lola Toye, said business had slowed down in the retail market because of the economy and the cost of products.
She, however, said that even before the recession, some retailers had been struggling due to the kind of products they were selling.
Mrs Toye said, “Malls are not really empty, they may not be full either, but tenants not keeping up happened even when the economy was booming. There is low spending power, so people are cautious of what they spend money on. They now focus on essential things rather than non-essentials.
“Those of us that are letting offices are also experiencing this. There is an impact, but developers are still building despite this. Things are not shutting down, people believe that the economy will turn around shortly and when it does, they will be ready to take in new tenants.
“Landlords are making concessions; those who borrowed in dollars and need to pay back their loans need to do that in dollars. Landlords need to recoup their investments, while tenants also need to make money. So, both tenants and landlords are getting more creative.”
According to Mrs Toye, there is still a huge demand for shops but it is taking longer to fill the malls than it was in the past and landlords are looking at charging rents annually instead of quarterly.
“With this, they don’t have to worry about any kind of fluctuation in the currency; within 12 months, things can turn around. Some malls that are not based on dollar investment can charge in naira. We are looking at what suits the tenant and what suits the landlord. We are optimistic and very cautious too,” she added.
Malls developer and the Chief Executive Officer of Top Services Limited, Mr Tokunbo Omisore, said concession had always been considered between landlords and tenants.
“I cannot, for instance, charge rent at the rate of the parallel market and it has been on for a long time,” he said.
The Founding Partner, Bode Adediji Partnership, an estate surveying and valuation firm, Mr Bode Adediji, said the biggest problem in the retail sector remained the payment of rents in dollars.
He added, “Charging tenants on dollar basis is okay in the interim, but it is not sustainable; there will always be an impact of the rent on the income to be generated by tenants. All over the world, rental charges are based on an understanding between landlords and tenants; but in Nigeria, it is totally absent. Landlords think they matter more, the mind-set is either you can afford it or not.
“The business model for a shopping complex should never be based on the short or medium-term; it should be on a long-term basis always.”
According to Mr Adediji, the way out of the current problem is for rental and lease agreements between shopping mall tenants and landlords to be based on realistic and sustainable parameters.
By Dipo Olowookere
A 1.08 per cent growth was further printed by the Nigerian Exchange (NGX) Limited on Friday on improved appetite for Nigerian stocks.
Data showed that the insurance sector lost 0.61 per cent yesterday due to profit-taking as the energy space gave up 0.08 per cent, while the commodity counter closed flat.
However, the industrial goods landscape appreciated by 2.06 per cent, the banking index improved by 1.31 per cent, and the consumer goods sector expanded by 0.83 per cent.
At the close of business on Customs Street, the All-Share Index (ASI) increased by 1,563.92 points to 147,040.07 points from 145,476.15 points and the market capitalisation went up by N996 billion to N93.722 trillion from N92.726 trillion.
UAC Nigeria led the advancers’ log yesterday after it grew by 10.00 per cent to N96.80, Transcorp Hotels jumped by 9.71 per cent to N172.80, Royal Exchange appreciated by 8.89 per cent to N1.96, Ikeja Hotel soared by 8.74 per cent to N31.10, and Veritas Kapital leapt by 8.07 per cent to N1.74.
On the flip side, Union Dicon declined by 10.00 per cent to N6.30, ABC Transport slipped by 9.88 per cent to N3.10, AXA Mansard depreciated by 7.19 per cent to N12.90, FTN Cocoa lost 4.62 per cent to trade at N4.75, and Guinea Insurance dropped 3.36 per cent to finish at N1.15.
A total of 38 stocks ended on the gainers’ table and 17 stocks finished on the losers’ table, representing a positive market breadth index and strong investor sentiment.
Traders transacted 361.6 million equities for N14.8 billion in 21,051 deals yesterday versus the 1.9 billion equities worth N19.2 billion traded in 23,369 deals a day earlier, showing a decline in the trading volume, value, and number of deals by 80.97 per cent, 22.92 per cent, and 14.20 per cent, respectively.
The busiest stock for the session was Zenith Bank with 59.5 million units worth N3.6 billion, Access Holdings traded 46.1 million units valued at N973.0 million, Fidelity Bank exchanged 29.4 million units for N560.4 million, FCMB transacted 27.9 million units worth N293.9 million, and Tantalizers sold 13.0 million units valued at N29.8 million.
By Adedapo Adesanya
Energy stocks influenced the 4.76 per cent loss recorded by the NASD Over-the-Counter (OTC) Securities Exchange on Friday, December 5.
The culprits were the duo of 11 Plc and Nipco Plc,with the former shedding N32.17 to end at N291.83 per share compared with the previous day’s N324.00 per share, and the latter down by N21.00 to sell at N195.00 per unit versus the previous session’s N216.00 per unit.
Consequently, the NASD Unlisted Security Index (NSI) slumped by 170.16 points to 3,401.37 points from 3,571.53 points and the market capitalisation lost N101.81 billion to close at N2.035 billion from the N2.136 trillion quoted in the preceding session.
The OTC securities exchange suffered the decline yesterday despite the share prices of three companies closing green.
Central Securities Clearing System (CSCS) Plc was up by N1.80 to close at N39.80 per share compared with Thursday’s price of N38.00 per share, Air Liquide Plc appreciated by N1.09 to N11.99 per unit from N10.90 per unit, and FrieslandCampina Wamco Nigeria Plc grew by 78 Kobo to N56.57 per share from N55.79 per share.
During the session, the volume of transactions rose by 6,885.3 per cent to 18.2 million units from 4.3 million units, the value of transactions ballooned by 10,301.7 per cent to N389.7 million from N347.2 million, but the number of deals declined by 29.7 per cent to 26 deals from 37 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the day as the most traded stock by value on a year-to-date basis with 5.8 billion units worth N16.4 billion, followed by Okitipupa Plc with 170.4 million units valued at N8.0 billion, and Air Liquide Plc with 507.5 million units worth N4.2 billion.
InfraCredit Plc also finished the day as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units worth N524.9 million.
By Adedapo Adesanya
The Naira depreciated further against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, December 5, as FX demand pressure mounts.
The Nigerian currency lost N2.60 or 0.18 per cent against the greenback to close at N1,450.43/$1 compared with the previous day’s N1,447.83/$1.
Equally, the domestic currency declined against the Pound Sterling in the official forex market during the session by N4.48 to trade at N1,935.45/£1, in contrast to Thursday’s closing price of N1,930.97/£1 and shrank against the Euro by 43 Kobo to end at N1,689.17/€1 versus the preceding session’s rate of N1,688.74/€1.
Similarly, the local currency performed badly against the US Dollar at the GTBank FX counter by N2 to close at N1,455/$1 versus Thursday’s N1,453/$1 but traded flat at the parallel market at N14.65/$1.
As the country gets into the festive period, pressure mounted on the local currency reflecting higher foreign payments and lower FX inflows.
However, there are expectations that the Nigerian currency will be stable, supported by interventions by to the Central Bank of Nigeria (CBN) in the face of steady dollar Demand and inflows from Detty December festivities that will give the Naira a boost after it depreciated mildly last month.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450/$1 next week, buoyed by improved FX interventions by the apex bank.
As for the crypto market, it was down yesterday due to profit-taking associated with year-end trading. However, the December 1-Year Consumer Inflation Expectation by the University of Michigan fell to 4.1 per cent from 4.5 per cent previously and 4.5 per cent expected. The 5-Year Consumer Inflation Expectation fell to 3.2 per cent from 3.4 per cent previously and 3.4 per cent expected.
With the dearth of official economic data of late, these private surveys have taken on a new level of significance and the market banks of them to make decisions.
Cardano (ADA) depreciated by 5.7 per cent to $0.4142, Dogecoin (DOGE) slid by 5.1 per cent to $0.1394, Ethereum (ETH) dropped by 3.9 per cent to $3,039.75, Solana (SOL) declined by 3.8 per cent to $133.24, and Litecoin (LTC) fell by 3.7 per cent to $80.59.
Further, Bitcoin (BTC) went down by 2.6 per cent to sell at $89,683.72, Binance Coin (BNB) slumped by 2.2 per cent to $883.59, and Ripple (XRP) shrank by 2.1 per cent to $2.04, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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