The rental market in Nigeria is in a delicate balance as COVID-19 takes toll on individual, household and organisation incomes, leading to tenants requesting for rents relief or extension from their landlords who are equally impacted by the deadly virus.
These requests cut across the various segments of real estate, particularly residential, commercial office space and retail facilities, raising concerns among investors and close watchers of the market as to the future of the market.
What this means is that in the days and months to come, apart from the frosty relationship that may arise between landlords and their tenants, rental properties will suffer from lack of maintenance and sustainability. Again, new investments in build-to-let or buy-to-let properties will drop significantly.
“These are unprecedented times and, in the industry, we need to put aside personal conveniences and come together for the greater good,” Paul Onwuanibe, CEO, Landmark Group, told BusinessDay. “At Landmark, we are engaging with all our tenants with a cocktail of relief options ranging from rent-free months, flexible payment plans, lease extensions and reduced escalations.”
Landmark Group is the developer of the expansive Landmark Village which is a destination for living, working and leisure. Onwuanibe said that “consideration for rent-free period depends on the tenant sector. Some get one month while some two months. We can’t afford three months.”
Ayo Ibaru, COO/director, real estate research at Northcourt, also confirmed to BusinessDay that based on request, a few property owners are beginning to work out softer payment methods for their tenants. He said for commercial properties, some landlords have stopped rent collection for a few months.
“These landlords are agreeing to collect same in the not-too-distant future. They are also willing to discuss extended payment terms,” he said, adding that some property owners are accepting smaller part-payments than usual.
Tunde Balogun, CEO of Rent Small-Small, said occupants of some commercial properties in Lagos are already negotiating the terms of paying their service charges as a lot of companies are still working from home and so they are proposing instalment payment.
It is, however, not all gloom in the rental market as some tenants are still able to pay their rents.
“The impact of COVID-19 on rent payment will be felt mostly in the next three months as the majority of tenants are still able to pay their rent at the moment,” Modupe Anjous, MD of Rydal Mews Limited, a real estate firm, told BusinessDay.
But the fear, according to a BusinessDay survey, is that if there is no relief on the impact of coronavirus pandemic on the Nigerian economy and business activities are halted, the ability of tenants to pay rents for commercial and residential properties may become challenged in the next three months.
The survey shows further that while a lot of tenants are still able to pay their rent despite the disruption from the outbreak of COVID-19 and the nationwide partial lockdown, landlords may run dry of revenue from rent if the current economic difficulties extend to August.
“It’s going to take a few rounds of renewals and new leases before the new trends fully emerge. An office lease can take up to six months to get executed and you’d need a few of those before you can begin to see trends,” Dolapo Omidire, founder/CEO, Estate Intel, said.
Omidire said the overarching themes, however, are flexibility in rental payment, rental incentives such as rent-free period, tenant allowance, shorter leases and options to contract or expand their space requirements as the need arises.
MKO Balogun, CEO, Global PFI, agrees, saying landlords’ considerations for tenants at the moment centre on flexibility in payment – quarterly instead of annual, the usual fit-out period moratorium, and reduction in minimum space.
Meanwhile, Nigeria’s property industry slowed to its lowest level in two years, at -4.57 percent as of March 31, 2020, and industry players linked the performance to the early effects of coronavirus pandemic as transactions have almost been put on hold since the virus was imported into the country in February 2020.
According to data by the National Bureau of Statistics (NBS), the growth in real Gross Domestic Product (GDP) of the real estate sector, a metric which measures the total monetary value of economic activities in the property industry, was -5.69 percentage points lower than the growth recorded in the first quarter of 2019, and -1.31 percentage points relative to the -3.45 in Q4 2019.
“Current and forward indicators confirm that 2020-21 will be the toughest year in decades,” Bismarck Rewane, CEO, Financial Derivatives Company Limited, said.
Rewane said Nigeria’s journey from a dismal performance to full recovery would be painful and depend on the country’s ability to maintain economic discipline in the adoption and management of a flexible exchange rate that is competitive relative to those of its trading partners.
A negative GDP expansion for Nigeria will mean cutting short the growth of many industries in the country, according to economists.
Since 2017 when oil-dependent Nigeria emerged from its economic recession, not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.
Out of about 4.8 million Nigerians who entered the country’s labour market between 2015 and 2018, about 635,000 jobs were created within the period, indicating only a job was available for every eight people who joined Nigeria’s economically active workforce.
According to Rewane, a higher unemployment level is likely to accompany an economic recession. He projected that Nigeria’s “unemployment will jump to 35 percent in 2020”.
With an expected surge in the already heightened unemployment rate coupled with the projected slowdown in economic activities, industry analysts believe that COVID-19 impact on rent payment will be drastic, especially if the pace of economic growth becomes more sluggish.
