Small and medium enterprises (SMEs) are paying more than three times the rate of rent that big firms are charged in Nairobi’s central business district due to high demand for ground-floor shop spaces.
A survey by the Institute of Economic Affairs has found that landlords and middlemen are exploiting SME owners, who lack information on available rental spaces.
It also found that besides exorbitant rent, their right to use of the spaces was widely abused including lack of contractual agreements on tenancy.
“The right to property of small businesses was found to have been widely violated mostly because landlords take advantage of shortage of retail space,” said IEA programme officer David Owiro.
The study, conducted between April and May in Nairobi and Mombasa, concluded that small businesses were paying higher rental charges compared to market averages mainly because of lack of central data bases showing available retail and commercial spaces and prices.
While some of the most expensive commercial buildings in Nairobi charge big companies rent of Sh150 per square foot per month, shop owners levy SMEs up to Sh500 per square foot.
Mr Owiro said that landlords had failed to guarantee basic services even after the applicable rent had been paid.
Some landlords had reduced tenancy leases to a single day, requiring individuals businesses to pay at the end of each day, further violating the tenants’ rights.
The most affected were small retailers dealing in mobile phone accessories, mobile money transfer outlets, and clothing stall owners, he said.
Practice of sub-letting
The businesses, he said, hardly had any contracts specifying their tenancy and could therefore not lay claim on services that should otherwise accrue to them.
Stanley Mwaniki, who has been running a small retail business dealing in new clothes and shoes for the past six years, just “bought” his second 60 square feet-stall last month at Sh600,000 “goodwill” for which he will pay Sh30,000 monthly rent. He said the venture was a “big gamble” and cited high demand as the main driver of the high rates.
“This business is a big gamble because there are days where you may not book a single sale but I have no option, I have to keep trying,” said Mr Mwaniki in the stall along Moi Avenue.
Among factors pushing up the cost of retail space in the two cities is the practice of sub-letting.
“We found out that there was a chain of landlords and this only means an additional cost per level. This could have been different if there was centralised data on available property in the market,” Mr Mwaniki said.
Simeon Rono, a portfolio manager at real estate firm Regent Management, said the rates charged on small retailers were exorbitant and exploitative.
“The rentals on the small retail spaces are a means of serious exploitation of small business people and its continued increase is likely to leave them with heavy losses,” said Mr Rono.
Mr Rono warned the entrepreneurs that meeting their rental obligations would be difficult as the market nears saturation with more individuals turning to opening stalls.