Prime office market offers compelling investment proposition at $1000/sqm

The value and investment propositions, which prime office market offers within and outside the shores of the country, have made it a compelling asset for investors that make up the commercial segment of real estate business, BusinessDay investigations have shown.

Consequently, most African cities, especially Luanda in Angola and Lagos in Nigeria, due to their rapidly growing economies, have become investment destinations, attracting nothing less than $1000 per square metre (sqm).

The development has made Lagos, the commercial city of  the fastest growing economy on the continent, to assume the second most expensive in the area of office market apartment.

Knight Frank, a leading real estate services firm with 21 offices in nine African countries including Nigeria, links the growth of economies in Africa to “demographic boom”, explaining that besides improving economies, Africa’s growth story was driven by demographic trends and urbanisation.

“Sub-Saharan Africa’s largest cities are some of the fastest growing urban areas in the world”, notes Albert Orisu, Knight Frank Nigeria’s senior partner/CEO, quoting a UN forecast which suggested that the population of Lagos, Kinshasa and Luanda would all grow by more than 70 percent during the 2010-2025 period, while Dares-Salam, Kampala and Lusaka were expected to double.

In Lagos, which comes second after Luanda at $150 per square metre, prime office rent goes for between $850 and $1,200 per square metre depending on location, which explains the surge in investment that has been seen in this segment of the market in the city.

At this price, Lagos is ahead of other African cities including Accra, Ghana at $37.50 per square metre; Cairo, Egypt at $35.00 per square metre, Johannesburg, South Africa at $22.00 per square metre; Cape Town also in South Africa at $18.00 per square metre; Nairobi, Kenya at $21.00 per square metre; Malabo, Equatorial Guinea at $40.00 per square metre, etc.

Munachi Okoye, the CEO of MCO Real Estate Limited, a Lagos-based real estate research firm, disclosed recently that prime commercial office rents across Victoria Island and Ikoyi which are exclusive and expensive locations in Lagos have risen through 2011-2013, pointing that even though rents went flat by the first quarter of this year on account of the just concluded general elections in the country, they were still high at $1,000 – $1,200 per square metre.

Appetite for high investment yield has, therefore, driven many up-market investors to this location, leading to many ongoing developments, especially along Alfred Rewane Road in Ikoyi now described as the new zone or preferred destination for commercial office development.

Projects coming on stream in 2015-17 in this location include Actis’ Heritage Place, BAT Tobacco’s Rising Sun development on 13 floors due in 2015, African Capital Alliance’s (ACA) 6,600sqm 12-storey head office (formerly Kings Tower) due in 2016 and Kingsway Tower on 15 floors due in 2017.

On Victoria Island, developments coming on stream in 2015 include Kanti Towers with 6,500sqm of lettable space, Civic Centre Towers with 11,350sqm of lettable space and Victoria Island Towers, Nest Oil’s new head office with 7,500sqm of lettable space.

Okoye hopes that when these projects are completed and they hit the market, they will prevent any upward pressure on rents.

BusinessDay had earlier reported that concerns were building up over market realities arising from the falling oil price and the devaluation of the local currency which have brought uncertainties in the market, compelling investors to plan ahead of possible demand drop and over-supply.

“What happens when the market does not live up to expectation is that there will be adjustments in all the things that drive the market and that will happen either this year or next when many of the pipeline projects will be completed”, an investor who did not want to be named, told BusinessDay.

“As supply comes and demand does not meet supply, there will be adjustment”, the investor stressed, adding that “there will be a great deal of efforts at product differentiation within the same market; people are going to be a lot more conscious of the quality they put into the market—the energy efficiency and environmental friendliness, a lot of things will come into play to differentiate one product from another including occupational cost.”

As a result of this, investors are making conscious efforts in most of the up-coming projects to build-in cost-saving strategies in the architecture of the projects such as energy-saving, environmental friendliness, ample parking spaces, etc all aimed at reducing occupational cost and stimulating demand.

CHUKA UROKO