Prime office rents fall in Lagos as real estate market sobers up

Recent developments in Nigerian economy are impacting heavily on the real estate sector, weighing down business and causing capital flight, says a new report released last week. But the situation has caused decline in office rents as developers are finding it hard to find premier tenants to occupy buildings.

A few years of spirited efforts to rise above the dumps may be petering out for Nigeria’s real estate sector, which appears to have slipped into low ebb, courtesy of recent monetary and fiscal policies that have precipitated a gradual slowing down of business transactions.

A new report released last week confirmed the development and for the first time in recent years, the effect has been evident in the Lagos office market with demand for space dropping off.

Essentially, international firms have been cutting down on staff numbers as country’s currency weakened against the dollar and other major currencies due to the fall in global oil crude oil prices.

This has caused a decline in office rents from an average of $1,000 square metres to $800 sq.m as developers are finding it hard to find premier tenants to occupy buildings with occupancy rates remaining low in several new office buildings.

Over the years, developers along the axis have seen office buildings as lucrative business as rents are traditionally quoted in dollar on a sq.m basis for foreign firms. Rents in this market segment can range from an average of $850 sq.m – $1,100 sq.m which is quite astronomical and very few local firms can afford.

Due to the recent rapid devaluation of the country’s currency, rents can now be paid in the naira equivalent as agreed in the lease agreement between the tenant and the developer.

The report by Lagos-based real estate research company – Residential Auctions Company (RAC) on Lagos Island Office Construction Market Report 2016, noted that despite the success the market enjoyed in 2015 with regards to supply of new office buildings, the new stringent economic policies targeting corruption have affected business activities across all sectors and slowed economic growth.

Despite the current lull in the sector, the Lagos Island office market development pipeline remains strong with several office and mixed-use buildings still under-construction and set for delivery in 2016 and 2017.

It estimates show that about 150,000 sq.m of office and mixed-use development space in the Lagos Island office market are under development.
“We estimate that Victoria Island has the largest market share of purpose-built office buildings at 79per cent, which supplies an estimated 336,615 sq.m of office space, which makes-up for 79per cent of purpose-built office spaces. Victoria Island also has 67per cent of mixed-use development buildings on the market, which supplies an estimated 31,742 sq.m of mixed-use space, which makes up for 64per cent of mixed-used space in the market. Victoria Island in total has an estimated 368,357 sq.m of office and mixed-use space, which gives it a market share of 78per cent.

Similarly, we estimate that Ikoyi has 13per cent market share of purpose-built buildings, which supplies an estimated 79,523 sq.m of office space, which makes up for 18per cent of purpose-built office spaces. Subsequently, Ikoyi has 33per cent of mixed-use developments on the market, which supplies an estimated 18,000 sq.m of mixed-used space in the market, which makes up for 36per cent of mixed-used space in the market.

In total, Ikoyi supplies an estimated 97,523sq.m of office and mixed-use space, which gives it a market share of 14per cent.
The managing Director, RAC, Mr. Omorotimi Akinlose said: “the 2015 was a remarkable year for the Lagos Island office market.”

A total of 109,916 sq.m of purpose-built office and mixed-use space were supplied to the market. The sudden increase in the supply of office space triggered a rents to rise as developers were in competition for top tenants to occupy the new office buildings in the market which had unique features and built to high standards.

Over this period, Victoria Island supplied 53,912 sq.m of purpose-built office space which makes up 64 per cent of office space supplied into the market and it has a market share for new purpose-built office buildings.

70%. Regarding mixed-use space, it supplied an estimated 17,404 sq.m of mixed-use space into the market which makes up 69% of mixed-use space and has a market share of 67% for new mixed-use buildings.