Nigeria’s commercial real estate market outlook still gloomy
Uncertainties in the real estate industry have continued to dampen commercial property market, on the back of a turbulent Nigerian economy.
And this monetary and fiscal polices largely driven by the country’s macroeconomic fundamentals, stoked inflation, slowed economic growth and created a volatile exchange rate.
According to the Nigeria Real Estate Market review and Strategic Outlook 2017, by Ubosi Eleh and Company, an estate surveying and valuation firm, optimism remains high among investors who hold that the fundamentals of the market are still strong, but if the 2016 policies continue, there will be further tightening of demand.
The report says, the outlook for commercial real estate this year, remains gloomy. The A class developments in locations such as Ikoyi, Victoria Island and Central Area, Abuja are projected to struggle in getting tenants.
The reasons for this are not farfetched. With the odd exception, few organisations are doing well in the current economic clime. In fact, many are contracting and reducing staff, which ironically means that these companies will even have surplus space that they are already paying for.
“Unfortunately, with the nature of leases in the Nigerian market, it could be more expensive to exit an existing lease contract than remain. Leases coming up for renewals will have their rents renegotiated downwards.
“2017 will witness a major reduction in the acceptable market rents in the A class commercial developments. Rents are projected to fall by as much as 40 per cent, if the recession bites harder and this will be all in a bid to attract tenants.”
However, the report predicts that demand for commercial zoned land for redevelopments into office buildings will remain high. “Investors will deep pockets will always strive to acquire these lands due to their limited supply for future development.”
For Class B and other commercial developments, the report said, there will be more defaults in terms of rent payments and legal actions to evict tenants as well as reduction of rents by property owners to ensure occupancy of buildings.
On warehousing and logistics real estate market, the report envisages that many facilities will come into the market for outright disposal. Rates in Lagos have remained in the range of N1200- 1800 square feet. “ Some of the major industrial estates in Ikeja, Oregun, Apapa, Ilupeju in Lagos, Idu in Abuja, TransAmadi in PortHarcourt, Bompai in Kano will continue to experience low activities with many of the warehouses being converted to show rooms, event centres and locations for religious activities.”
For the residential real estate, the report projects that dollar based rental properties will continue to get realistically priced by being redenominated in naira or will have much lower dollar asking rents.
“ Most landlords not wanting their properties to remain unoccupied will be ready to reduce rents and service charge to accommodate new tenants. Compromise will be made on things like 24 hours service charge, especially where poor electricity supply and diesel costs are concerned. The market for corporate tenants occupancies will continue to remain elusive.
“To stay in business, developers will make homes smaller to lower costs. Quality will reduce drastically in terms of materials and finishing. We project a marginal 10 per cent to 15 per cent increase in rental values of flats as more people squeezed by the economy downsize from duplexes and detached houses to flats.”