In what is clearly a significant shift in development cycle, the commercial real estate market in Lagos state has recorded a 19 percent increase in development activity in 2021, a new sector report compiled by Estate Intel has shown.
This development is a major shift when compared to 2020 and it marked a return to market activity in the city’s construction industry. Construction activity in the industry came to a zero level in 2020 following Covid-19 lockdowns and physical distancing rules.
The report compiled by Estate Intel, an online real estate research platform, notes that the increase in development activity so recorded was buoyed, in part, by increasing investor-interest in key sectors such as offices, residential and healthcare.
“While absorption levels remain low in sectors such as prime offices which recorded vacancy levels ranging between 12 percent and 36 percent for Grade A and B offices, developers remain bullish on the market with over 600,000 square meters of space under development,” Dolapo Omidire, CEO, Estate Intel, explained.
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Overall, outlook on the alternative real estate sectors, including data centers, healthcare, and student accommodation, in Lagos remains optimistic with the Estate Intel report revealing that over 10 percent of projects in the development pipeline in the next 5 years falling within this category.
According to the report, this share is expected to increase as these sectors gain traction due to their strong income profile, making them attractive to investors.
On the other hand, while the retail sector recorded the largest share of the development pipeline relative to existing stock, estimated at 60 percent, activity in the sector is likely to remain subdued.
Vacancy levels are expected to remain high, largely underpinned by poor access to the crucial foreign exchange required for imports, a depreciating currency, and increasingly unaffordable rents.
“The momentum that began building at the end of 2020 was sustained throughout the year with a slow and steady return to construction and real estate activity. However, currency challenges and longer-term trends such as the sustained oversupply in the retail and office sectors are likely to tip the scale upon completion of some of the projects that we await in 2022, ultimately impacting on occupancy levels and achievable rents,” Dolapo explained.
He added, however, that with the economy revving back up, it would, no doubt, impact on the occupier and buyer’s purchasing power, presenting pockets of opportunity for some of the sub-sectors that meet the delicate balance between price and quality such as the mid-tier residential sector, neighborhood malls as well as flexible offices.
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