Introduction
Institutional retailers leaving the Nigerian real estate market has been a significant trend in recent years. Some weeks ago, specifically on Monday, 11th of September 2023, Novare, a Nigerian Institutional Investor, listed its assets for sale in a publication on Business Day. Novare Real Estate Nigeria Limited (NREN) is a leading commercial real estate development and management company in Nigeria, with more than 10 commercial buildings across Sub-Saharan Africa. The company is notable for having developed some of Nigeria’s largest Grade A retail projects, with their signature project being the Novare Mall Lekki, Lagos. According to the publication, Novare is set to sell four (4) commercial and retail assets in Nigeria. These assets include three retail malls (in Lagos and Abuja) and one mixed-use commercial property comprising office and retail spaces in Abuja.
Background
The announcement, albeit shocking, is not entirely new. In the past 5 years, a sizable number of Nigeria’s largest retail developers and anchors have exited the market. Case in point, 16 years after opening its first store in Nigeria, Shoprite, Africa’s largest food retailer, sold its Nigerian operations to a company owned by a group of local investors led by property firm Persianas Investment, Ketron. The transaction happened in 2021, and the buyer intended to move the giant from an ownership model to a franchise model. At the time, Ketron had announced plans to continue opening new Shoprite stores and introduce more made-in-Nigeria products. Other foreign companies have encountered similar operational challenges with doing business in the Nigerian market, leading to their exit from the country, such as Mr Price Group, Woolworths, and Truworths International. Why are institutional retailers leaving the Nigerian real estate market?
Asset Restructuring and Downsizing Expected Amid Forex Liberalisations
Following the liberalisation of Nigeria’s foreign exchange rate, we expect to see real estate demand in prime office and retail assets change. Tenants will start to downsize or reduce space requirements to manage the cost increase and maintain profitability.
As the search for liquidity amongst large scale institutional asset owners continues, purchase interest has been low.
| Name | Lekki Mall, Sangotedo, Lagos | Apo Mall, Abuja | Gateway Mall, Abuja | Novare Central, Abuja |
| Developer | Novare | Grand Tower | Novare | Novare |
| Size (in sqm) | 21,000 | 8,000 | 14,000 | 11,000 |
| Location | Off Lekki-Ajah Expressway, Sangotedo, Lagos | Cadastral Zone B14, Dutse, Abuja | Kilometre 8 Along Airport Road – Abuccima Land, Abuja | Wuse Zone 5, Off Michael Opara Way, Abuja |
| Delivery Date | Aug-16 | Jan-12 | Jan-17 | Jan-18 |
| Occupancy Rate | 92% (as of June, 2023) | 97% (as of June, 2023) | 94% (as of June, 2023) | 95% (as of June, 2023) |
| Annual Footfall | 5.7 million (as of December, 2022) | 1.7 million (as of December, 2022) | 3.6 million (as of December, 2022) | 2.2 million (as of September, 2023) |
| Anchor Occupiers | Shoprite, Lifemate, JED Lifestyle, Miniso, Bedmate, Genesis Deluxe Cinema, Krispy Kreme | Shoprite, JED Lifestyle & Megastores, PEP, BAFFI Furniture, Krispy Kreme, Miniso, Blue Fox Lounge | Shoprite, BAFFI Furniture, Funworld, Genesis Deluxe Cinema, EHA Clinics, Scanfrost | Shoprite, The Vue, Esteem Furniture, Active Leisure |
Source: Business Day, Estate Intel, BuyLetLive
Shrinking purchasing power underpinned by inflation forces major retailers to exit the Nigerian market.
Inflation is a major driver of shrinking purchasing power in Nigeria. As inflation rises, consumers have a lower purchasing power and are forced to pay more for fewer goods and services leading to a decrease in demand for retail products, and retail businesses leaving the country. There are several factors that contribute to inflation in Nigeria. One is the country’s reliance on imports. Nigeria imports a significant amount of food and other goods, and the cost of these imports has been rising due to global supply chain disruptions. Another factor is the depreciation of the Nigerian naira. The naira continues to lose value, exchanging at higher values vs the British Pound and US Dollar, resulting in higher costs of import.
Institutional retailers leaving the Nigerian real estate market is indicative of a broader economic trend. The rising cost of living in Nigeria has made it difficult for many consumers to afford necessities. As a result, they are spending less on discretionary items, such as retail products. This has had a negative impact on retailers, who are struggling to stay afloat. In addition to the challenges posed by inflation, retailers in Nigeria are also facing other obstacles, including high taxes and a lack of infrastructure. These multifaceted challenges have made it increasingly difficult for retailers to operate profitably, and many have been forced to exit the country in response to these adverse conditions.
Here are some specific examples of how inflation is forcing Nigerian retail operators to leave Nigeria:
Shoprite, a South African retailer, announced in 2020 that it would be closing all its stores in Nigeria. The company cited the country’s challenging economic environment, including high inflation, as one of the reasons for its decision. Walmart, another international retailer, exited the Nigerian market in 2018. The company said it could not make its Nigerian business profitable due to several factors, including high inflation. Many local Nigerian retailers have also been forced to close their doors in recent years due to inflation. For example, a recent survey by the National Association of Small and Medium Enterprises (NASME) found that over 50% of small businesses in Nigeria have closed in the past two years, with inflation being a major factor.
Foreign exchange related pressure that is making it difficult to return capital
With unprofitable P or L statements, it remains difficult for companies to service their shareholders / return capital to their parent companies or investors. With the increasing cost of imports, it is more difficult for companies to operate profitably.
In addition, the Nigerian government has imposed several restrictions on foreign exchange transactions in recent years. These restrictions have made it more difficult for Nigerian companies to repatriate profits and dividends to their foreign shareholders. The combination of these factors has made it difficult for Nigerian retail operators to attract and retain foreign investment. As a result, many foreign retailers have decided to leave the Nigerian market.
Growing boutique retail market segment
Institutional retailers leaving the Nigerian real estate market is a complex issue, further compounded by the rise of boutique retailers. These smaller, more specialized retailers offer a unique and personalized shopping experience, distinguishing themselves in the market. Boutique retailers are often more nimble and adaptable than prime retail operators, allowing them to cater to the specific needs of their target market more effectively. As a result, boutique retailers are gaining market share in Nigeria, presenting a challenge to prime retail operators. This intensified competition, combined with the existing economic challenges, has pushed some institutional retailers to exit the country. The landscape of the Nigerian retail market is evolving, with a shift towards more personalized and niche offerings.
Rising maintenance and operational costs
Rising maintenance and operational costs are forcing major large-scale retailers in Nigeria to leave because they are making it difficult for these retailers to operate profitably.
Here are some of the factors that are contributing to rising maintenance and operational costs in Nigeria:
Inflation:
Inflation is the rate at which prices for goods and services are rising. In Nigeria, inflation has been rising steadily in recent years. This is making it more expensive for retailers to maintain their stores and operate their businesses.
Foreign exchange:
The Nigerian naira has depreciated against foreign currencies in recent years. This is making it more expensive for retailers to import goods and operate their businesses.
Infrastructure:
Nigeria has poor infrastructure, such as roads and power. This makes it difficult and expensive for retailers to transport goods and operate their businesses efficiently.
Security:
Nigeria has a high crime rate. This makes it expensive for retailers to secure their stores and protect their employees and customers. This was part of the reasons that drove Shoprite and Walmart out of the Nigerian market in 2020 and 2021 respectively.
The rising costs of maintenance and operations are making it difficult for large-scale retailers in Nigeria to compete with smaller, more agile retailers that can operate more efficiently. As a result, some large-scale retailers have been forced to leave the Nigerian market.
But how easily can these assets be sold?
ICM has been in the market since 2020.
The departure of retail operators from Nigeria is having a negative impact on the country’s economy. It is leading to job losses and a decrease in the availability of preferred merchandise. The Nigerian government is working to address the challenges facing the retail sector, and we anticipate the ease and impact this will bring to the sector.