Investors in Nigeria are becoming, increasingly, risk averse in spite of the lull in economy and the political risk and uncertainty occasioned by the just concluded presidential and national assembly as well as the upcoming governorship and state assembly elections.
This diminishing risk aversion to the aftermath of the elections relative to the previous electoral cycle of 2015 was reflected in the market transactions in the last quarter of 2018 when approximately14,500 square metres of A-grade office space was taken-up in the Ikoyi, Lagos market alone.
Ikoyi, an upscale real estate destination in Lagos, was originally and predominantly residential, but today it is about an unrivalled home of glitzy luxury high-rise office buildings mostly along Kingsway Road. In this location are the Heritage Place (15,631 sqm), Alliance Place (6,670 sqm), Kingsway Tower (12,000 sqm), Temple Tower (14,000 sqm), BAT’s Rising Sun (10,000 sqm) and Lake Point Towers (13,400 sqm).
Heritage Place, arguably, is Nigeria’s first green office building standing on 14 floors. “This ultra modern, eco-friendly building is Nigeria’s most advanced development, employing the latest building principles and state-of-the-art finishes; it is one of Lagos’s most recognizable and accessible buildings”, said Funke Okubadejo, a director at Actis—the developers of the office complex.
Heritage Place is the only Leadership in Energy and Environmental Design (LEED)-certified building in Nigeria. It has five floors of parking with the highest parking availability for 360 cars. It has high profile tenants including Actis, British Petroleum, BBC, HP, Visionscape and others.
In Q4 2018, longer term investors continued to enhance their presence in the market with a number of signed leases being for more than1,000 square metres, which deviates from the smaller sized office transactions in previous years when investors looked for between 200 and 500 square metres.
Bolaji Edu, CEO, Broll Nigeria in their office market viewpoint with Intel Property, noted that 2018 saw a significant amount of activity relative to the previous year, especially as the economy forged ahead in its path to recovery.
“The level of enquiries for office space increased in 2018 with a more diverse profile of tenants in the technology, finance, oil and gas, fast moving consumer goods (FMCG), aviation and pharmaceutical industries”, he affirmed, adding that 2018 also witnessed a slight evolution of occupier requirements for lease acquisitions.
An increased number of tenants have started looking at flexible, serviced office options, especially small scale new entrants seeking flexibility to either expand or exit the market as and when required. Co-working space requirements has risen significantly and service operators are operating at full or near full capacity.
Service providers are primarily local providers, operating in stand-alone converted residential properties or B-to C-grade office buildings. Co-working space is coming up thick and investment opportunity here is huge. Demand, driven mostly by milliennials and start-up community, is growing exponentially.
“Millennials and the startup community continue to drive up the demand for coworking spaces with service providers seeking to convince traditional large-scale employers of the benefits of coworking just as corporates are in conversations geared towards putting up underutilised space for coworking use”, Ayo Ibaru, Director at Northcourt Real Estate, confirmed.
But, for the prime office, there is no denying the fact that challenges remain despite the transactional improvement seen in the last 12 months. Though vacancy rates are are currently down, 59 percent and 54 percent in Ikoyi and Victoria Island respectively, over 40,000 square metres space is expected in the market to add to the existing 400,000 square metres stock.
“In 2018, landlords were increasingly sensitive to the existing oversupply of stock in the market and as such strategic leasing options had to be devised in order to attract tenants to their buildings. These leasing options included attractive financial incentives such as extended rent-free periods as high as 12 months, longer beneficial occupation (BO)periods of 6 months and tenant fit-out allowances of as high as US$400 per square metre”, Edu recalled.
This means that, although asking rentals remained constant for much of 2018, net effective rents (base rents net of incentives) fluctuated below asking rents. The median average asking rent for A-grade offices in Ikoyi remained constant at US$750 per square metre per annum in Q4:2018. In the Victoria Island commercial node, the median average asking rent also remained fairly constant at US$650 per square metre per annum.
Edu pointed out that there are two major risks for investors to watch and these oil price and the local currency. According to him, with the economy still heavily dependent on oil revenues to sustain economic activity, a slowdown in oil prices could have adverse effects on economic activity.
This means that if economic activity contracts, office market activity, which moves in tangent with the economic cycle, is also very likely to be negatively affected. Similarly, a possible devaluation in the local currency by year end could introduce risk impacts in the form of increased occupational costs within office buildings.
CHUKA UROKO
