The persisting economic downturn in Nigeria, affecting individuals, families and institutions, has caused major shifts in demand, supply and pricing of real estate assets, creating an attractive investment opportunity for funds and patient investors looking beyond the downturn.
Rents for residential and commercial office property in Lagos, the country’s commercial capital, have dropped by around 20 percent year-on-year due to a supply glut, as projects planned before now are being completed and
introduced into the market.
However, the rental market remains strong and very active in the low-middle market where vacancy rates are very low and zero percent in some cases as against 30 percent, 26 percent and 33 percent vacancy rates in Ikoyi, Ikeja GRA, and Oniru in Lagos, respectively.
This explains why short-let apartments in Lagos, Port Harcourt and Abuja have continued to grow, partly driven by the tepid return of expatriate technicians and the influence of Airbnb – a platform that allows property owners earn income on their residential assets. The platform has grown by over 200 percent in the last five years.
Besides the economic downturn, the property market in Nigeria poses a lot of challenges such that investing in it requires a willingness to navigate opaque land laws, corruption and the prospect of having money held up in the banks.
The market, therefore, offers opportunity for investors who have this willingness and also those betting that this most populous nation in Africa will deliver high returns when it climbs out of the present lull.
Writing on property market crash in Reuter’s African Business, Alexis Akwagyiram says the central bank has made it difficult for investors to repatriate profits as it seeks to avoid a collapse of the naira due to a slump of oil revenues, which pushed Nigeria into its first recession in 25 years.
Akwagyiram, however, notes that Nigeria has a fast-growing population that will require more housing and shopping malls in the long-term, and some investors believe the time is right to step in, particularly as banks are reluctant to grant loans to other potential buyers in the midst of the downturn.
Bolaji Edu, CEO, Broll Nigeria, agrees, stressing that though there are challenges in the short term, there are potential prospects in the medium to the long term. “I believe that in the medium to long term, there are still potential prospects for the retail market. This is very strong,” he says.
Continuing, he says, “In terms of formalised retail, Nigeria is yet to scratch the surface. Also talking in terms of square metre per population, the country is just scratching the surface. Lagos has got about 50 percent of the retail space in the whole country. Compared to Nairobi with a smaller population and a larger retail space, it would seem we have not even started.”
He points out that these prospects were driven by demographics, explaining that the country has a huge and young population, and all the demographics were working in its favour. “But the big issue here is exchange rate stability which affects investors’ business model and potential return on investment,” he notes.
Some private equity funds, mostly from South Africa, are investing in Lagos and Abuja, betting the spending power of the country’s 180 million people will grow. South African investors like RMB Westport, Actis and Resilient Africa have strong footprints in Nigeria and, according to Funke Okubadejo, real estate director for Actis, “Nigeria provides a compelling market opportunity.”
“We believe Nigeria has massive potential in the retail area,” says Jan van Zyl, head of Nigerian property development at South African fund, Novare Equity Partners, which opened one of Nigeria’s largest retail facilities in Lekki, Lagos, recently. “The sector is in its infancy and will only continue to grow from a very low base,” van Zyl hopes.
