BY ANTHONY SEDZRO
The days of building large, out-sized shopping malls, similar to the likes of the Accra and West Hills malls are over. The economic recession in Nigeria and the macro-economic challenges Ghana has faced in the last few years have reduced the prospect for bigger sized retail property developments in West Africa, panellists at the just ended West Africa Property Investment (WAPI) summit say.
The WAPI summit was a conference and exhibition held from 16-17 November at the Kempinski Hotel Gold Coast City, Accra. The summit brought together speakers from all over the globe to the Ghanaian capital to discuss the challenges, opportunities and the future of commercial real estate in the West African sub-region. Additionally, networking opportunities, panel discussions and access to the latest information about projects and deals in Africa were part of the well-attended two day event.
Contributing to the panel discussion on the topic ‘West Africa Retail Power Panel’, Leonard Michau, Director and Head of West Africa Operations for Broll Property Group in Nigeria, said the days of building 20,000 square meters shopping malls are gone. Tenants are not prepared to spend. A lot of local tenants are also under stress from high operating cost and low margins, inhibiting their capacity to expand.
Michau, whose company Broll is a property management firm with operations across Africa, manages the Accra, West Hills and Achimota malls, the three biggest retail malls in Ghana. He said despite the fact that retail mall sub-sector is still in its infancy in West Africa, growth of the sector is slow looking at the projected Gross Domestic Product (GDP) growth projections of the sub-region. Investors must thus take a long-term view of the region if they seek to invest in huge retail property because consumerism is still at a slow pace. Michau also said a lot of local tenants in the malls are under a lot of stress so they are not prepared to expand.
Michael Chu’di Ejekam, Director of Retail Investment Platform, Nigeria, said that the main driver for investment in shopping malls is returns (revenue). The economic headwinds in Ghana and Nigeria led to low returns for investors in the last few years. According to him, between 72 per cent of retail spend in Ghana is on groceries and essentials to feed the family. Of that figure, about 50-60 per cent is spent on basic items, with very little left to spend on luxuries. Ejekam said in Nigeria, consumers spend 45 per cent on groceries.
Edmund Asamoah, a Ghanaian, is the Managing Director of A&C Development Limited, the owners of ‘A&C Mall’ in East Legon suburb of Accra, the first modern retail mall in Ghana. Asamoah revealed that although there were few retail shopping malls 10 years ago, there were more foreign retailers with a lot more experience. He said although the retail environment has not changed dramatically, the sizes of new mall projects are minimising, affirming the views of his fellow panellists, Michau and Ejekam.
He said now there is more data available on what the market size and other factors actually are, and that is also one of the few reasons why the sizing of retail malls are not as when the trend started.
Have shopping malls been profitable?
According to Asamoah, unlike in the earlier days where foreign retailers comprised 80 per cent of tenants, the ratio is now 60 per cent foreign, 40 per cent local. From the standpoint of A&C mall, the tenants, especially service providers, were doing well because they are offering services that are in demand. However, the fashion brands came in when the economic headwinds had started so they are having challenges. We must grow more local brands because when economic times are tough, the local tenants stay and ride out the storm.
Ejekam, who is the former Retail Director for Real Estate (West Africa) for Actis, a private equity firm-most active retail developer in Sub-Saharan Africa, hinted that some of low returns experienced by retail investors is self-inflicted. He said some retailers, especially those from South Africa did not do enough market research to understand local market dynamics of their West African customers. This leads to wrong pricing, wrong colours of fabrics, wrong sizing of shoes and so on. He explained that West Africans preferred brightly coloured fabrics and dresses, as an example. However, many clothing and fabrics in the retail shops of the South African retailers are mainly of mild colours.
On the Nigerian retail sector, another set of panel discussants revealed that total Gross Leasable Area (GLA) in Nigeria increased from 30,000 to 300,000 currently, a growth of about 900 per cent. In spite of this growth, there was still a lot to do based on the population and demand. Jan Van Zyl, Head of Property Development at Novare Nigeria said that Nigeria’s market is huge, justifying its tag as Africa’s biggest economy. However investors were now targeting smaller shopping malls where tenants can take space in.
On challenges in the Nigerian retail sector, Lanre Fatimilehin, Chief Operating Officer of Africa Real Estate Investment and Asset Management (ARIA) Nigeria, said that rents and leases in the sector were Dollar-linked and the fall in the Nigerian currency, the naira, made rents expensive. Secondly, he said the cost of building malls was also expensive and the cost was market-driven. Fatimilehin called for the development of more home-grown retailers.
Michael Ejekam of African Retail Nigeria Limited said that costs were still higher and it costs double to build a mall in Nigeria as it is to build one in South Africa.
Government decisions and regulations on Public Private Partnership (PPP) arrangements can enhance or inhibit the growth of the real estate sector. Karim Ibrahim is the Managing Director of Dream Realty Ghana Limited, developers of ‘The Octagon’, a mixed-use commercial project in Central Accra. It comprises Grade A commercial office spaces, retail spaces and serviced hotel apartments. Ibrahim said the company had to adapt to local market conditions as they had been undertaking their real estate project for the last four years. Ibrahim said the concept of a PPP was a good one especially the situation where the government provides land for private investors to develop. He advised that if inter-government bureaucracy is improved, the investor climate will be much better for real estate investors like himself.
Andrew J. Murphy, a Co-Founder of Ecolodge Ghana Limited, a service and luxury accommodation provider in exclusive locations in Ghana’s National Parks and community wildlife destinations. Murphy said that for PPPs to thrive, there need to be coordination and consistency in policy by regulatory authorities. He said for instance, although generous tax incentives abound under Ghana’s laws to attract investors, they are difficult to access due to bureaucracy. Despite that, Ecolodge was the first Ghanaian game reserve accommodation provider to open a branch in Ethiopia, East Africa.
Speaking to the GB&F after the event on his impressions of this year’s WAPI summit, the MD of Dream Realty Ghana Limited, Karim Ibrahim said “This year and last year [we attended]. This is the second time I have participated and it has been really great. It puts people who are from the same industry together from both foreign and domestic. You know Accra and Ghana is very wide and there are a lot of companies we don’t know actually exist. Once we are all under one roof here, it makes it very good for cooperation between local companies and potential foreign investors.”
API Events are the organisers of the WAPI Summit and other events across the continent. Kfir Rusin, the General Manager of API Events said the event achieved its aim.
“I think given the macro-economic climate both in Nigeria and Ghana although Ghana is improving, I thought it was very well attended. We got good stakeholders from the region as well including Ivory Coast and obviously strong support from Nigeria and Ghana. So overall it was a good improvement I think on the back of the climate that exists, I think we’ve done a good job in unifying the market and bringing all the necessary stakeholders together to discuss how we are going to move the industry forward”, Rusin says.
Rusin said this year’s event had its unique offering: “It’s been a lot of solution-focused discussions where it has kind of gotten to a level where participants can now take home certain solutions to problems, different viewpoints as well as meet new people in different areas and different countries. So I think that on the whole it is a good success” he added.
The 2017 WAPI summit will be held in Lagos Nigeria, as a way of building the WAPI brand in the hub of West African real estate.