Though the residential segment of the property market is already feeling the upcoming general elections in Nigeria scheduled for February 2019, the elections are expected to have a fairly negligible impact on prime office market activity, a new report has said.
The report insists that relative to the impact that the 2015 electoral process had on the market, 2019 elections will not be quite impactful, pointing out that private investment decisions are not necessarily conditioned on the time leading up to or the aftermath of the elections.
This is amply reflected in the volume of supply which is anticipated to rise in the coming months. Expected prime-grade supply over the next six – 12 months is in excess of 40,000 square metres, comprising Cornerstone Tower (15,700 square metres), Kingsway Tower (14,800 square metres), Number One Lagos (11,200 square metres) and Waltersmith (6,000 square metres).
But unlike this (office) segment of the market where market fundamentals, especially demand and supply, are anticipated to remain fairly stable with slight upticks in transactional activity, the residential market is already witnessing distressed sales which analysts say are not unconnected with the elections.
“Expectation is that many new assets will be coming to the market from people who want to run for elective positions. By simple economics, when supply outstrips demand, especially in an environment where you don’t have liquidity, prices will fall. Again, because these people want quick cash, they will sell the assets at very low prices,” Gbenga Ismail, an estate surveyor and valuer, confirmed on phone.
“Already the market has seen over 10 percent drop in prices and it can only get worse as we move closer to the election proper,” he added.
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Adetokunbo Ajayi, CEO, Propertygate Development and Investment Company, agrees, saying that the market will be receiving ‘distressed assets’ as the electioneering campaign heats up.
“Those who want to contest elections and need money desperately will resort to selling their assets, more so if they have no other sources of credit”, he noted.
The office market is different. According to the Q3 2018 report by Broll Property Services, a relative improvement in office market dynamics has been evident in the first three quarters of 2018 with a slight rise in the frequency of enquiries.
“Even though elections are forthcoming, in 2019, this is not expected to have a significant impact on occupier demand. Longer term investors tend to be more bullish with regards to the Nigerian economy and, as such, continue to drive activity in the market”, Opuda Sekibo, a researcher at Broll, said.
Sekibo noted, however, that requirements have evolved to incorporate less barriers to exit as against the past practice where some occupiers would take on space with an additional ‘growth space’ for future growth in operations. In place of this are flexible and functional spaces.
“The market in the quarter under review witnessed notable spikes in demand from smaller multinational corporates in B- and C-grade buildings for more functional spaces”, he said, adding that the oil and gas sector recorded the largest frequency of enquiries.
Other industries that also contributed to market activity within that period included fast moving consumer goods (FMCG), pharmaceutical, technology, finance and consulting. On average, the demand for office space fell between 200 square metres – 500 square metres.
However, it is still a tenant market as some practices that have become the norm, including rent free periods, tenant improvement allowances, extended fit-out periods, have persisted amongst prime-grade landlords. In their bid to drive occupancy levels, landlords are offering competitive leasing terms which are favourable to tenants.
Over all, average asking rent for A-grade offices in Ikoyi, Lagos, has remained constant at US$750 per square metre per annum in Q3. In the Victoria Island commercial node, the median average asking rent has also remained fairly constant at US$650 per square metre per annum.
But vacancy rate in A-grade buildings are still very high and are currently around 76 percent and 56 percent in Ikoyi and Victoria Island respectively.
CHUKA UROKO
