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 0.38 per cent loss was suffered by Nigerian stocks on Tuesday on the back of continued selling pressure from investors embarking on profit-taking.
Data from the Nigerian Exchange (NGX) Limited showed that the contraction was influenced by the 1.78 per cent decline recorded by the insurance sector, the 0.24 per cent slip printed by the consumer goods index, and the 0.09 per cent drop posted by the energy space, offsetting the 0.75 per cent growth achieved by the banking sector and the 0.21 per cent growth recorded by the industrial goods segment.
Investor sentiment was weak during the trading day, as the bourse ended with 13 price gainers and 40 price losers, representing a negative market breadth index.
LivingTrust Mortgage depreciated by 10.00 per cent to N3.42, Multiverse also shed 10.00 per cent to N22.95, McNichols dropped 9.92 per cent to N5.45, Thomas Wyatt dipped by 9.87 per cent to N3.56, and Eterna lost 8.57 per cent to trade at N33.00.
On the flip side, AVA Capital improved by 9.94 per cent to N9.95, Livestock Feeds expanded by 9.71 per cent to N8.65, Neimeth increased by 8.43 per cent to N9.00, AIICO gained 3.47 per cent to settle at N4.18, and Oando grew by 3.30 per cent to N36.00.
A total of 1.6 billion equities valued at N28.7 billion exchanged hands in 54,160 deals yesterday versus the 923.0 million equities worth N37.9 billion traded in 72,544 deals on Monday, indicating a 73.35 per cent surge in the trading volume, a 24.27 per cent decline in the trading value, and a 25.34 per cent slip in the number of deals.
The busiest stock was Japaul, which transacted 904.4 million units for N2.7 billion. Sterling Holdings sold 54.0 million units valued at N431.9 million, FCMB exchanged 49.5 million units worth N545.9 million, Chams traded 44.9 million units for N199.2 million, and Neimeth sold 42.4 million units worth N327.8 million.
Business Post reports that the All-Share Index (ASI) gave up 927.70 points to 244,802.83 points from 245,730.53 points, and the market capitalisation receded by N599 billion to N158.016 trillion from N158.615 trillion.
By Adedapo Adesanya
The Naira put up a better performance against the United States Dollar in the various segments of the foreign exchange (FX) market on Tuesday, August 4.
In the parallel market, it improved its value by N5 to settle at N1,400/$1 compared with the previous day’s value of N1,405/$1, and at the GTBank forex desk, it appreciated by N1 to close at N1,373/$1, in contrast to the preceding session’s N1,374/$1.
In the Nigerian Autonomous Foreign Exchange Market (NAFEX) segment, the Nigerian currency gained N2.28 or 0.17 per cent against the greenback to quote at N1,362.55/$1 compared with the N1,364.83/$1 it was exchanged a day earlier.
Also in the official market, the local currency appreciated against the Pound Sterling during the session by N6.48 to finish at N1,831.41/£1 versus N1,837.89/£1, and chalked up N5.22 on the Euro to sell at N1,568.71/€1 versus N1,573.93/€1.
Interbank FX transactions increased 14 per cent day-on-day as market makers’ activities raised total Dollar volume exchanged to $156.23 million, more than 132 per cent above $137.05 million in turnover at the previous close.
The interbank FX turnover rose despite a marginal rise in deals at the NFEM window as data from the central bank put Tuesday’s quote at 139 from 138.
As for the cryptocurrency market, major tokens were mixed as global stock indexes hit fresh records on renewed enthusiasm for artificial-intelligence-related shares.
With cheaper oil, easing rate expectations and a strong risk-on rally in equities supporting digital assets, analysts say crypto appears to be driven by internal market dynamics rather than macroeconomic factors, even as traders watch for a potential Strait of Hormuz deal.
It was reported overnight that Iran and Oman were close to an agreement to reopen the Strait of Hormuz, with an announcement targeted for Wednesday.
Binance Coin (BNB) grew by 1.8 per cent to $600.54, Bitcoin (BTC) rose by 0.9 per cent to $64,199.86, Solana (SOL) jumped by 0.8 per cent to $73.95, and Ethereum (ETH) advanced by 0.7 per cent to $1,867.21.
But Cardano (ADA) depreciated by 1.9 per cent to $0.1908, TRON (TRX) dipped by 0.6 per cent to $0.3268, Dogecoin (DOGE) slumped by 0.5 per cent to $0.0698, and Ripple (XRP) crashed by 0.4 per cent to $1.06, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 apiece.
By Adedapo Adesanya
Brent crude dropped below $80 per barrel, precisely losing $4.41 or 5.3 per cent to settle at $79.36 a barrel on Tuesday, after comments by officials from the United States and Qatar raised hopes for a diplomatic resolution to the Iran war, which could improve oil flows through the Strait of Hormuz.
Also, the US West Texas Intermediate (WTI) futures depreciated by $4.57 or 5.7 per cent to trade at $75.77 a barrel.
US Secretary of State Marco Rubio said on Tuesday there was progress in talks with Iran and Oman about moving more ships through the strait, but a final agreement was yet to be reached.
Also, Treasury Secretary Scott Bessent had said earlier on Tuesday that a deal with Iran to reopen the strait could come as soon as Tuesday or Wednesday.
Qatar’s Foreign Ministry spokesperson Majed al-Ansari said efforts to secure a diplomatic resolution to the war were continuing.
Qatar said it has discussed with US President Donald Trump ways to reduce escalation and converge viewpoints between the US and Iran.
Meanwhile, the latest round of US-facilitated talks between Israel and Lebanon began on Tuesday and will continue through Thursday.
Amid this, Iran still wants control over inbound shipping and visibility over outbound traffic through the Strait of Hormuz, with the ability to intervene if necessary, as part of a plan being discussed with Oman to reopen the strategic waterway.
Market analysts noted that the prospect of a diplomatic solution to the conflict has helped remove some of the geopolitical risk premium in oil prices. If negotiations between the US and Iran make meaningful progress, the market could continue pricing in a lower probability of supply disruptions.
Disruptions to shipping through the strait, through which a fifth of global oil and gas flowed before the war, have forced Middle Eastern nations to cut oil output sharply. The world has lost more than 2.6 billion barrels of oil since the Iran war began in February.
Shipping traffic at the key Gulf waterways of Bab el-Mandeb and the Strait of Hormuz remained unchanged at the start of the week.
The American Petroleum Institute (API) estimated that crude oil inventories in the US rose by 2.69 million barrels in the week ending July 30. Commercial crude oil inventories excluding the SPR have lost just over 58 million barrels over the last sixteen weeks, with US crude inventories down just 7.2 million for the year, according to API data.
Official data from the US Energy Information Administration (EIA) will be released later on Wednesday.
