Premium commercial property rents to drop 30% in 2017

The impact of foreign exchange scarcity on the property market will continue in 2017 as experts say the premium end of the commercial market will be witnessing more than a 30 percent drop in rent for new Grade A office developments on the Lagos Island.

The experts explain that many businesses which were held down by the challenges in economy in 2016 will not turnaround fast enough to see increased demand in the property market.

But analysts say the New Year also offers investment opportunities for savvy and patient investors with cash, who look beyond recession, insisting that since the fundamentals, including strong demographics and a widening demand-supply gap remain intact, the long-term view of the property market also remains encouraging.

Some of the new developments, residential and commercial, that came into the market in 2016 took a serious hit from the economic downtown, as some prime office rents dropped in their asking price from $1,100 per square metre to $850 per square metre.

Some retail malls, especially the newly completed ones in the Lekki axis of Lagos, also suffered the same fate, dropping their rents from $1,000 per square metre to $700 and $850 per square metre. Some luxury residential developments in the highbrow areas, especially in Ikoyi and Victoria Island, dropped by 20 percent to between $65,000 and $85,000 per annum for a unit of three-bedroom apartment.

“Our biggest challenge in 2016 was lack of investor confidence whether local and international. It does not look as if there will be increased confidence in 2017 and if that remains the case, we will most likely witness an economy that will remain stagnant and may possibly perform worse.  The real estate industry took a great hit in 2016 and will need much stimulus to recover”, said Chudi Ubosi, an estate surveyor and valuer, who spoke in a telephone interview.

Ubosi sees another tough year ahead for real estate and its operators, noting that rental and capital values will remain at the same levels as in 2016 while a good number of dollar-denominated rents will continue to drop, as landlords seek willing tenants.

Though Ubosi sees a glimmer of hope for the retail sector in the new year, as the fundamentals driving the sector remain strong, Adeniji Adele, Vice President, Federation of International Real Estate Association (FIABCI), Nigerian Chapter, says the glut in the property market will continue until there is a very robust and sound economic policy in place in the country.

Adele hinged improved activities in the market on increased attention to infrastructure and human capital development, along with proper re-orientation of value systems, which he notes, have been badly eroded over the years.

Depending on government’s ability to sustain the momentum in economic recovery efforts and the fight against corruption, Femi Akintunde sees accelerated economic recovery by the first quarter of this year, following which the real estate industry will begin to witness significant growth. He hopes that before the end of the year, the real estate sector will turn around, in line with the increased positive outlook for the Nigerian economy.

Akintunde agrees that economic recovery and stimulus plans must be put in top gear through heavy investment to improve infrastructure development, advising that the various policies already in place to discourage importation of foreign goods must be sustained, while focusing more on those policies that would encourage more of local production and exportation of goods and services.

He also advised that efforts would be intensified to stabilise the economy, believing that the stability would re-enact investor-confidence as local and foreign investors would be encouraged to commit to new major projects and renew interest in existing ones.

CHUKA UROKO