Nigeria’s retail boom might be over before it started unless investors bring malls closer to people

Shoprite’s outlet in Kano, northern Nigeria
Shoprite’s outlet in Kano, northern Nigeria
Image: Reuters/Pascal Fletcher
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Over the past decade, large American-style malls have become a more regular feature in Nigeria’s largest cities.

Investors have been attracted by the promise of Nigeria’s large population and growing middle class, and looked to snag some of the pie for themselves. When the first malls opened in 2004, Nigeria was on the cusp of an economic boom and given the under-supply of formal retail space at the time, the opportunity mix seemed right for investors. Sprawling malls home to famous high-end brand stores, movie theaters and large supermarket chains, like the South-Africa owned Shoprite, quickly started to pop up.

But Nigeria’s economic troubles over much of the past two years has slowed the pace of investment and the growth of the industry, a report by by Estate Intel, a real estate research firm, shows.

To leverage the promise of Nigeria’s middle class and get the most bang for their buck, a smart play will be to switch the focus from building large fancy malls in business districts to smaller sized, neighborhood malls, says Dolapo Omidire, lead researcher at Estate Intel.

Omidire says it’s an option some developers are already considering as the the large mall model “is not something that can be replicated to scale.”

That reality has been amplified by Nigeria’s economic troubles over the past year which saw mall tenants caught in the cross-hairs of Nigeria’s dollar crunch amid its first recession in two decades. As most malls charge dollar rents—around $55 per square meter monthly—tenants were soon paying more than before given the sharp fall of Nigeria’s naira currency. Retailers that stocked imported goods were doubly affected. As a result, last year, vacant spaces in major retail centers rose to 47% on average, Estate Intel’s report says.

But things haven’t always been so grim.  Between 2009 and 2015, Nigeria’s retail industry grew rapidly at 40% per year. In that period, a total of 199,600 square meters was added to Nigeria’s retail space—more than 64% of the current total formal retail space. Even though foreign investors backed the first few major mall projects in Nigeria, the boom between 2009 and 2015 was largely powered by local capital, Estate Intel’s report shows. Indigenous investors, including Persianas Investment and UACN Property Development Company (UPDC), have now developed 63% of Nigeria’s existing modern centers.

The recent economic struggles indicate the tenant pool of retailers is not robust enough to support multiple large-type malls, particularly outside of Lagos and Abuja, where most of Nigeria’s middle class can be found.

To get around the problem of high rent for would-be tenant retailers at neighborhood malls, Omidire says investors will have to build less elaborate and smaller malls of around 7,000 square meters—around half of the size of typical large malls—and simply focus on delivering space at affordable rates.

“There’s no point building big malls when people can’t afford the rent,” he tells Quartz. Bringing the smaller sized malls to major neighborhoods will compete with local grocery stores and informal markets which remain very popular but Omidire says investors can bet on the convenience the neighborhood malls will provide shoppers. Long term, he says, if there are enough neighborhood shopping malls providing shoppers with groceries, food, medicine and essential fashion, “customer behavior will change” and informal markets will become a less favored alternative.

The mall-going culture has become popular in Nigeria but many people see the large malls as destination spots for a fun day out rather than to shop thus keeping tenant retailers viable. ”If I build a $100 million mall and people are showing up just to take pictures, then it’s a big problem” Omidire tells Quartz.