The ‘new normal’ of working remotely, mainly from home, triggered by social distancing as one of the preventive measures for the deadly coronavirus pandemic is impacting negatively on commercial real estate, BusinessDay findings have shown.
While Nigeria’s real estate industry, like in other parts of the world, has incurred losses as a result of the pandemic, the transition from physical office building to remote working, which has been largely embraced by many companies, is expected to bring more harm to the office space market.
The situation is already dire in many companies. Whereas some operate with 60 percent of their staff physically present in compliance with health and safety protocols, especially social and physical distancing, others operate virtually or with lower percentage of their staff.
“The impact of companies deciding or encouraging their staff to work from home will be significant on commercial office space market post-Covid-19. Existing users may give up more than 40 percent of the spaces they currently occupy,” MKO Balogun, CEO, PFI Global affirms, adding that new office developments will not be able to command desired patronage or rent.
By the second half of 2019, the total stock of A-grade office space in Nigerian market was 110,000 square metres. The year-to-date completion was 45,000 square metres while the year-to-date gross take-up was 20,100 square metres, leaving the market with an estimated 41 percent vacancy rate.
Landmark Africa Group, developer of the expansive Landmark Village in Lagos, which is one-stop shop destination for living, working and leisure, says its Landmark Towers is largely unoccupied. “Not many people are there because of the pandemic; most of our tenants are working remotely,” Paul Onwuanibe, the Group’s CEO, told BusinessDay.
Onwuanibe had disclosed that the company was considering 1-2 months rent-free period for their tenants to cushion the impact of the Covid-19 pandemic on their businesses. “It has been tough for everybody, but we hope to get over it soon,” he said.
Another medium-size company, which did not want its name mentioned, says it is working with only 60 percent of its staff present at any given time, meaning that it will be giving up 40 percent of the office space it occupies. “We have already decided to give out that space for co-working, which people could rent to work for a few hours and leave,” an official of the company revealed.
Furthermore, besides Facebook which has adopted a policy that requires its employees to permanently work from remote locations, a lot of other big ticket, multi-national companies have also reduced their physical presence in their office structure.
Recently, Andela, a New York-based tech company with operational campuses in Nigeria, Ghana and Kenya announced its decision to go fully-remote and, this, in analysts’ view, is an example of what is ahead for the commercial office space market.
Andela’s co-founder/CEO, Jeremy Johnson, confirmed the statement in a twitter response, saying, “it is true that we’re going fully remote, but it’s not a secret. We announced it earlier this week to all Andelans.”
According to David Livingstone, CEO of Europe, Middle East and Africa, Citigroup, the office sector in the real estate industry is one that will be affected most by the COVID-19 pandemic.
“We as an organisation have lifted our staff working from home to more than 95 percent in some places,” Livingstone said, adding, “if even a small proportion of companies translate that into part of their permanent architecture post-COVID that would have an effect on particularly high-end office space.”
Meanwhile, Nigeria’s Office Market Viewpoint H2:2019 data by Broll Nigeria shows that, for the first time since 2014, Nigeria’s grade-A office space reported the largest take-up of about 20,100 square metres in 2019 on the back of increased demand from tech and oil and gas industries.
While the bulk of the grade-A office space was delivered in the first half of 2019, around 45,000 square metres of office space entered into the A-grade market last year. The most noteworthy of the major transactions that occurred in the year under review was the sale of the Cornerstone Tower Development (GLA of 12,040 square metres) in the second half of last year.
“The bulk of concluded transactions were driven by the tech and oil & gas industries. The level of enquiries in the second half of 2019 remained generally unchanged relative to the first half of the year,” Nnenna Alintah, researcher at Broll Nigeria, said.
Apart from the oil and gas and tech industries which dominated the sectors that enquired about the grade –A office space, industries such as business services, diplomatic institutions and media were also mentioned on the list.
On how the expected decline in demand for office space will impact other sub-sectors of the property industry, Ayo Ibaru, the chief operating officer and director of Research at Northcourt, says the demand for larger/more room apartments is likely to go up as individuals settle into the lifestyle switch of working from home.
“As things are, it is unlikely that everyone will return to fully working from the office,” Ibaru says, adding that it will also lead to an adjustment in the demand for “office space and co-working with the latter more likely to benefit in the long run.”
According to Aaron Guy, head of EMEA Reits Research, Citigroup, the increase in work from home initiative could trigger another big shift in office market volatility.
“Remote working could lead to office value decline. 1 percent decline in London office jobs could lead to a 15-20 percent decline in rent. So, it depends on how businesses reduce office usage,” Guy says.
