Prime office space rents down 4% to $790/sqm in Q2 as supply surges

As the prime office space market responded to supply surge and the increasingly competitive environment in the second quarter of 2015, average asking rentals fell for a second consecutive time by 4 percent to $790 per square metre, down from between $850 and  $1,000 per square metre in the last quarter of 2014.

Other factors, including the fall in oil prices, devaluation of the naira and political uncertainty that characterised the pre-election period in the country also had their effect, placing on landlords and developers of prime grade office space strong downward pressure in their rent considerations.

In Lagos, Nigeria’s commercial nerve-centre, Victoria Island added 10,350 square metres of new office space through the completion of 100 Pier Point on Ajose Adeogun Street and Civic Center Tower on Ozumba Mbadiwe Avenue.

The delivery of Civic Centre Tower was a significant turning point in prime office development, as the Tower made a remarkable outing in the market, achieving 100 percent occupancy almost immediately after completion.

Close market watchers attributed this to the quality of its construction and the high pedigree of its promoters.  “The iconic nature of Civic Towers and the developer’s profile also match the ethos and excellent service delivery our firm stands for”, notes Tawanda Gumbo, the managing director, Akintola Williams Deloitte. Gumbo adds that the choice of the Tower as their new address was because it provides the optimal future proof location for them in the light of its strategic location.

Dolapo Omidire, Research Analyst at Broll Property Services, says more of such spaces are expected in the market, estimating  that up to 15,000sqm space is currently under offer in this location, with many tenants using newly found leverage to negotiate better leases.

“While this location remains the core for commercial activity in Lagos, large additions to supply are beginning to balance out high rentals, Omidire noted in his company’s second quarter report on the real estate market, adding that  these new additions are at the same time, changing the chronic undersupply narrative which was typical of the Lagos office market.

Gbenga Olaniyan, an estate surveyor and valuer with strong footprint on the sales and rental markets confirms the drop in prime office rents in the up-market locations, adding that on account of the slowdown in the economy, companies are not changing address.

“We have seen many renewals and when you have a situation like that when companies are not moving to new and  bigger offices, you automatically understand that the economy is not doing well”, he says, pointing out that some of the new developments are sparsely occupied.

Omidire observes that in Ikoyi, no new offices were completed during the second quarter, pointing out however, that  about 1,000sqm of lettable space would be coming to the market  by virtue of the  completion of  BAT Rising Sun, on Alfred Rewane Street.

In spite of the current situation, looking towards the latter part of 2015, strong leasing activity is still expected and the current stock is expected to increase by 25,100sqm across all nodes, by year end.

Expectation is that the financial services and  technology sectors will continue to be the largest  sectors driving demand for prime grade office space in Lagos and, according to Omidire, rental levels in Victoria Island are  expected to see additional pressure; however downward pressure may begin to lose momentum at  $700 per square metre.

CHUKA UROKO