Why are Kigali’s Malls Almost Empty?

Kigali City authorities directed all businesses operating in residential areas to relocate to commercial zones

In January this year, the city of Kigali issued a directive requiring all businesses to vacate residential neighbourhoods and relocate to commercial zones.

More than 910 businesses operating in residential areas were mapped across the city and had only up to March to relocate.

Commercial building owners across the city had complained that they lacked clients because most were operating in residential areas.

KT Press conducted a mini-survey around Kigali city to assess the level of occupancy in commercial buildings and below are the findings.

On Friday, Christian Makuza – the Managing Director of Makuza Peace Plaza building in the City centre strolled around the building meeting clients. The 15-storey building worth $42 million is struggling to woo clients.

“We have received some clients but most of them come, discuss contract terms and don’t come back,” Makuza told KT Press.

“We still have 50% of empty space waiting for more clients,” Makuza told KT Press. Makuza, however, is confident that clients keep coming ‘but are few.”

A closer look shows that most commercial buildings across the city are almost empty – just like Makuza Peace Plaza.

For example the newly completed multi-million complex owned by Muhima Investment Company has just been occupied by a few companies and organisations.

Martin Mulisa, the managing director of the complex told KT Press that occupants are still few compared to available space.

“We have started receiving occupants but they are still few. We need more,” Mulisa told KT Press.

However, since the directive by City of Kigali was issued, the would-be occupants claim, it’s very expensive to rent space in the commercial buildings some of which also charge in dollars.

Janvier Karitanyi – a Kigali-based owner of a law firm told KT Press that the commercial complexes charge higher prices than residential areas.

“Besides charging high prices, most proprietors do not accept to be paid in local currency. This jeopardises our payment plans,” Karitanyi told KT Press.

A newly constructed mall owned Champion Investment Company (CHIC) in the heart of Kigali city

Central Banks’ Directive

In August 2015, Central Bank (BNR) issued a notice cautioning landlords over quoting prices in foreign currency instead of the local currency.

The National Bank said the decision aimed at ‘reducing the impact of speculators on the dollar rate and consequent artificial shortages that had plagued the local Forex market’.

But according to Central Bank, some owners of commercial buildings may be allowed “based on the case they put forward.”

On this, Christian Makuza insists that this claim by tenants is a lame excuse. “We don’t charge tenants in dollars. We only put a price quotation in dollars but tenants can always pay in local currency,” he said.

However, as per contractual terms, this arrangement means that a tenant accepting a quotation in dollars will always pay a different amount in local currency every time there is a fluctuation in the dollar against the Rwandan franc which in most cases is appreciation of the dollar.

As of Tuesday, October 24, a dollar was sold at $848.2036 against the Franc and bought at $831.5738 according to Central Bank’s exchange rates.

In the same period last year, a dollar was bought at 804.583084 and sold at 820.67312.

This had seen an appreciation of the dollar by $76.725295 (buying) and $78.259645(selling) as of October 23, 2015 according to Central Bank’s exchange rates.

The Imported Materials theory

While customers raised concerns of landlords charging in foreign currency, Agustin Rwomushana – Director of economic development at the City of Kigali says tenants should not complain a lot since proprietors accept to receive money in local currency.

He defended the proprietors explaining that most construction materials are imported and charged in foreign currencies.

“Most owners of commercial building put price quotations in dollars because they import construction materials and pay in dollars,” he said.

High costs

Most of the business owners we talked to during the mini-survey raised the concern of the high rates charged by the commercial buildings as one of the reasons they are being shunned.

KT Press discovered that at big commercial buildings in Kigali’s Central Business District (CBD) and in the outskirts of the CBD, price quotations range from $14 to $25 per square meter.

“$25 is a lot of money charged per a square meter,” Maurice Nkuranga, a business owner told KT Press.

But Rwomushana says that City authorities have held discussions with owners of commercial buildings to reduce rent rates and they have heed to the call.

For instance, Christian Makuza told KT Press that to woo new tenants, prices have been slashed. “At first, we charged our clients $22 dollars per square meter but, we have lowered it to between $14-15 depending on negotiations,” he said.

Camarade Mazimpaka of Champion Investment Company (CHIC) also told KT Press their clients have been charged depending on negotiations following consultations with the City of Kigali.

“Most of our clients are traders. We are left with almost no space for big offices. We have only 1 office floor that can accommodate 5 offices and we charge them based on their proximity to the entrance of the building,” he said.

Meanwhile, most owners of companies and other businesses who spoke to KT Press expressed worry over the unreliability of Commercial business owners as far as respecting contracts is concerned. They say it is also a factor why many are not running for the mushrooming buildings.

They say most proprietors of commercial buildings are quick at terminating contracts whenever big clients like banks that pay much with lengthy contracts express interest.

“Imagine a company running a Radio station being asked to move its equipment because a big client has come. You can imagine how much losses you would incur in such a scenario,” said one media manager adding that it is the reason most businesses dodge commercial buildings.

However, Christian Makuza told KT Press that this should not be an issue. “Our customers should not worry. For example, under our contract terms, we put a six months clause between us and a client to avoid impromptu termination of contracts. And those willing to pay in longer terms cannot suffer,” he said.

In most commercial buildings, contracts offered range from one year onwards depending on the two parties’ consent.

Enough Space available

City authorities believe that there are more commercial buildings available to accommodate new companies and organisations relocating from residential areas.

According to Rwomushana, companies and organisations have heed to City of Kigali’s call to move from residential houses.

Of the mapped 910 of them, “Over 50% of them have shifted to commercial complexes. Those who are still there have sounding reasons. For example, companies like those in the media have requested for more time to move equipment which we fully understand,” he told KT Press.