Globally, the outgoing year will go down in history as one in which coronavirus pandemic brought the world economy on its knees with industrial activities halted, offices closed and personal, household and organisations’ incomes down to almost zero-level.
In Nigeria, though all sectors were affected, the real estate sector was the hardest hit. The impact was all encompassing. Apart from transactions which dried up in the physical market, rent suffered significantly as landlords struggled to collect just as much as tenants struggled to pay.
It was a year of job losses, pay cuts and reduced income, all of which have direct bearing on rents in residential houses, commercial office space and retail malls where rents are paid per square metres.
The five-week lockdown imposed on Lagos, Federal Capital Territory (FCT) Abuja, and Ogun State, and later in all cities and states of the federation coupled with the physical and social distancing rule were a major blow, especially on market transaction.
Owners of residential properties, commercial office space, retail and hospitality facilities were unable to collect rents from many of their tenants, even after granting some rent relief. Because of social distancing rules, offices were partially closed down as the occupants were forced to work from home.
“For the past two months, many of my tenants were telling stories whenever I asked for my rent and I didn’t even know what to do,” a property owner who introduced himself simply as Mr Afolabi told BusinessDay in Yaba, Lagos.
Freeman Osonuga, managing director, Adloyalty Business Network, noted that there were delays and defaults in rent payments, adding that some landlords were kind enough to give their tenants some months of free rent while others resorted to giving the defaulting tenants more time to pay up.
Apart from the frosty relationship that arose between landlords and their tenants, the impact of the pandemic on the rental market made rental properties suffer from lack of maintenance and sustainability while new investments in build-to-let or buy-to-let properties declined.
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Both hospitality facilities and events centres were completely closed down for reasons of restricted business travels and social distancing rule respectively. What that means is that within that period, which spanned March to August, return on investment in most parts of real estate market was minimal. The lockdown and social distancing also led to a reduction of construction activities and low supply.
The situation at the time created a table of losers and gainers and real estate was a major loser. A BusinessDay survey revealed that there were only a few gainers and those were logistics or warehousing, land banks, small-unit apartments, and home buyers with cash, especially those with foreign currency.
Investors held back investment, and those of them who took bank loan to do developments were under immense pressure by their creditors to pay back. That led to distress-sales that left the borrowers worse off, just as it affected market stability and profitability. It was a buying opportunity for investors though.
Extremely low occupancy rate, estimated at 20 percent, and reduced revenue from events and conferences, and zero revenue from business travels due to movement restrictions combined to make the global and Nigerian hospitality industry a shadow of its former self.
While grocery shops and food supermarkets were not much affected by the pandemic due to their exemption from the lockdown, the retail market suffered as retail outlets reported a significant reduction in footfall, pushing retailers to request for rent relief and incentives, and to downsize their space.
“Retail actually took a hit. It was one of the big losers, followed by the hospitality industry. Whereas the social distancing rule reduced occupancy rate to 60 percent of the full mall capacity, footfall (shoppers traffic) also went down because consumer purchasing power dropped, Gbenga Olaniyan, CEO, Estate Links, confirmed.
He added that some retailers closed shop while those, still resilient enough to tag along, reduced their space such that those formerly occupying 1000 square metres downsized to 500 square metres, taking the rest of their stock to warehouses.
Fabian Ajogwu, chairman, Novare Africa Real Estate, developers of the Novare Lekki Mall, shared this view. He pointed out, however, that the problem was not of Covid-19 per se, but what he called “the reactionary measures from governments across states and regions” on commercial real estate.
According to Paul Onwuanibe, CEO, Landmark Group, though it is difficult to quantify, the loss investors incurred in this sub-sector was substantial,” estimating that operators of event centres lost over N800 million in the first three months of the pandemic.
Estate developers were another group of losers who, according to Adetokunbo Ajayi, CEO, Propertygate Development and Investment Company, were challenged in many fronts.
“Apart from lack of credit from banks, you could not even go to site and where you could, you couldn’t do development because no way to import your materials,” he said.
He added that even those whose houses, especially luxury houses, were already on the market could not find buyers.
“But there was market for affordable small-size family housing units. Investors in this house-type were part of the few gainers in the sector at that time,” he said.
