COVID-19: Tenants gain as landlords offer rent-free period to sustain business
The ravaging impact of coronavirus pandemic may have some silver-lining for tenants, especially middle and low income earners in residential houses whose income has been badly affected by the virus.
This is because, while some landlords say the current situation calls for understanding and forbearance, some others are offering rent-free period of 6-12months as a way of sustaining their business and also cushioning the impact of the virus on tenants.
“This is the time for landlords to show understanding with their tenants. Many of these tenants are workers whose salaries have either been cut or not paid at all because workplaces have been shut down,” Kunle Awobudu, President, Nigerian Institute of Building (NIOB), told BusinessDay.
Awobudu said the housing market was passing through a trying period when rent payment default was rampant because household income had been badly eroded by the coronavirus which has locked down economic and business activities.
Frank Okosun, CEO, Knight Frank Nigeria, a foremost firm of estate surveyors and valuers, takes it further. “We have calls from our clients offering six to 12 months rent-free period,” he confirmed.
“These clients just want to keep people in their houses because they know the cost-implication of maintaining empty houses,” he explained, adding that residential vacancy rate might spike in the weeks and months to come.
Okosun foresees a challenging future for the real estate sector, pointing out that the falling oil price and a possible devaluation of the Naira will impact on the sector in a very significant way.
“The Nigerian economy depends on oil. The 2020 budget was benchmarked on $60 per barrel when the oil was selling, until a couple of days ago, for below $30. This means the economy risks slipping into another recession,” he said.
The Central Bank of Nigeria (CBN) has been trying its best to protect and save the Naira from devaluation, but with the state of the global economy, there is only so much the apex bank can do. Okosun reasons that if the naira is devalued, it would affect cost of building materials which are up to 70 percent imported.
“This means that supply of housing will shrink while demand will still be there. Following the simple rules of economics, when demand is high and supply is low, the inevitable is a rise in price levels,”, he said.
Okosun noted that tenants were not moving or changing address and this is more pronounced in the commercial office market. He lamented that the coronavirus pandemic struck when the office market was about to recover from recession.
A recent report by Broll Property Services puts the vacancy rate in the office market, as at the end of the second half of 2019, at 41 percent. The report also puts the number of office space expected in the market in 2020 at 130,000 square metres.
With the current situation in the economy, Okosun sees more vacant spaces coming. “Today, all offices, except those on essential services, are shut down and people are working remotely from their homes. This may continue even after the lockdown because people have seen that it is cheaper and more convenient,” he observed.
Before now, office space suppliers or landlords had been offering interesting incentives and concessions to prospective tenants to beat competition which defines that segment of the real estate market. The market has seen significant over-supply and the scramble for tenants is quite keen.