Weak sales since December and a surging dollar have forced some retailers in Kampala to relocate their businesses from large shopping malls in the central business district to cheaper premises closer to residential zones.

Landlords in Kampala’s suburbs charge about $13 per square metre compared with an average of $20 sought for premises in the city. Retailers who deal in electronics, cosmetics and jewellery form the majority of those relocating downtown.

“Due to intense competition, low sales and a weak shilling, traders have been discounting their products in order to make ends meet. But because landlords are rigid on rental charges, it becomes a challenge,” said Martin Magala, a downtown-based electronics dealer.

Analysts attribute the low sales to weak consumer spending patterns, a consequence of widespread cuts in company budgets and declining remittances from Ugandans living in the diaspora.

“We have noticed a decline in commercial property searches on our website,” said Nsubuga Shakib, country manager at property firm Lamudi.

The sharp depreciation of the Ugandan shilling has complicated matters since a number of property owners in the CBD charge rent in dollars, meaning rental bills have been rising.

The shilling has lost more than 12 per cent against the dollar since January 2014, due to widespread global strengthening of the latter and heavy domestic corporate demand. The local unit was trading for as low as Ush3,051 last month. It hit another record low of Ush3,008 this month.

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Cheaper dollar loans

Lower interest rates charged on dollar denominated loans are the biggest reason property owners prefer to use the currency to price rent. Lending rates on dollar loans have averaged 7-10 per cent per annum since the second half of 2014, compared with 19-22 per cent on the shilling, according to central bank data.

Also, the majority of construction inputs are imported, so developers prefer dollar-based prices in order to eliminate currency conversion costs incurred on loan repayments, experts said.

“The fact that traffic outside the CBD is less congested and that shoppers can pick from a wider variety of goods have contributed to the popularity of shopping malls in the suburbs,” said Abraham Tigeikara, a mobile phone dealer.

Marc Du Toit, head of retail property management at Knight Frank Uganda, said the trend is likely to continue in coming years.

“We expect stronger growth in shopping malls outside the city before 2018,” he said.

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