Despite the slowdown in global real estate demand on account of economic headwinds that were evident in the final quarter of 2022, the construction and real estate sector in Nigeria ended the year strong with additional contribution to GDP.
According to the ‘Global Real Estate Perspective March 2023’ report compiled by Jones Lang LaSale (JLL), the slowdown in both leasing and occupier market was due to rising inflation, climbing interest rates, and slowing growth.
“Signs of slowing momentum became more evident in the office market during the fourth quarter. Global leasing volumes were 19 percent lower than it was in Q4 2021 with demand moderating in all three regions. Additionally, net absorption turned negative during Q4 for the first time in 2022,” it said.
Benjamin Breslau, global chief research officer at JLL, said that in the logistics sector, demand remained broad-based but has slowed from record levels, with limited available space, adding that uncertainty in the global economy was encouraging caution in occupiers, leading to slower decision-making and more defensive strategies.
Breslau said a combination of structural changes to office usage and cyclical challenges affected demand more heavily in the final quarter of 2022.
He added that global office leasing volumes were 6 percent lower over the quarter and 19 percent lower than in Q4 2021, with leasing activity moderating across all three regions.
In Nigeria, despite rising costs, which got worse by the last quarter of 2022, recent GDP figures released by the National Bureau of Statistics (NBS) show that both construction and real estate contributed an additional N8.9 trillion to the GDP in Q4.
The sector had in the first three quarters of that year contributed N20 trillion to the GDP. A breakdown of the additional N8.9 trillion shows that construction services contributed N5.7 trillion while real estate contributed N3.1 trillion to the GDP in the period under review.
An analysis of the NBS report shows that the annual growth rate of the real estate sector was 10.75 percent in 2022, with a total contribution of 5.64 percent, higher than the 5.60 percent reported in 2021.
Also, income from its services in Q4 grew by 10.61 percent, higher by 7.13 percent points than the growth rate reported for the same period in the prior year.
“In nominal terms, real estate services in the fourth quarter of 2022 grew by 10.61 percent, higher by 7.13 percent than the growth rate reported for the same period in 2021 and higher by 1.48 percent compared to the preceding quarter,” the report said, adding that the sector growth rate was 22.95 percent on a quarter-on-quarter.
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The annual growth rate of the sector was 10.75 percent in 2022. The total contribution of the sector in real terms stood at 5.64 percent, higher than the 5.60 reported in 2021. Overall, a growth of 3.95 percent was recorded in 2022.
According to the GDP data, contributions from construction services also grew by 4.54 percent during the period under review, while nominal growth quarter-on-quarter was recorded at 16.10 percent.
Close watchers of the sector say that its contribution to the GDP shows how resilient it is, adding that the contribution also shows what the private sector could achieve if given the necessary support.
Looking into the future, the global report expects leasing activity to be subdued in the first half of the year as decision-making processes lengthen or are postponed due to economic weakness. The report adds, however, that a brighter second half of 2023 is anticipated, with demand for high-quality assets remaining more robust throughout the year.
According to them, in the long term, the ongoing flight to quality by office occupiers will continue to create further split in the market, such that Grade B and lower-quality assets, particularly in non-central locations, will struggle to lease up and alternative uses may need to be considered.
“In more central locations, a move towards heavy refurbishment and retrofitting will be needed to bring assets up to the required standards for occupier needs,” it said.
