Prime office space suppliers are, increasingly, yielding more grounds in incentives to existing and intending tenants as office market struggles over declining demand and more than enough supply.
Renting or leasing below prevailing market rate, allowing flexible payment structure, lease or rent holiday, are some of the incentives offered by developers to attract tenants or stimulate demand.
Additionally, erecting green buildings and furnishing them with ultra-modern facilities are also part of the strategies being employed by developers to differentiate their products and beat competition in an oversaturated market. All these are expected given the prevailing market condition.
Broll Nigeria’s half-year report on office market shows that year-to-date (YTD), a total of 33,000 square metres have been completed while 110,000 square metres space are under construction and expected to be completed and offloaded into the market by year end, adding that, year-to-date, gross absorption stands at 11,600 square metres while vacancy rate has risen to 61 percent, up from 57 percent in the last quarter of 2018.
Analysts posit that prime office market remains tenant’s market, but industry players are of the view that the choice to sell or lease at discount or par with market price or rent is determined largely by the location of the property.
“The most important factor to consider before deciding whether to give incentive or not is location,” said Najeem Adeyemi, realtor at Lagos-based real estate firm, Ewenla & Mustapha Limited, arguing that if the location is strategic enough and fits the need of the buyer, he wouldn’t mind paying the market price.
The property market which has, in the last five years, seen a surge in Grade ‘A’ office space amid weak demand now put developers in a tight corner.
A sales executive at a Lagos-based property development office that leases prime office space told BusinessDay that, in some situations, his firm gives out rent holiday ranging from two to six months depending on the lease tenure, to incentivize prospective tenants or encourage existing ones.
According to the sales executive whole did not want to be named, some developers do compensate on referrals which involve giving additional space without extra cost.
“The trend in the market has put buyers in advantageous position. Sometimes, the payment pattern doesn’t go in our favour,” he said.
BusinessDay findings as regards the strategies used by developers to remain competitive in the market showed that developers are tilting towards Leadership in Energy and Environmental Design (LEED) certified buildings as a form of product differentiation.
LEEDS includes a set of rating systems for the design, construction, operation and maintenance of green buildings that aims to help builders be environmentally friendly and resource-efficient.
Further findings showed that some developers go as far as approaching multinationals, telling them of the many benefits they stand to enjoy from such LEEDS- certified buildings.
“LEEDS buildings optimize power consumption, and many large corporates prefer to operate in an environment with relatively lower energy cost,” said Rotimi Steven, a broker at Lagos-based real estate firm, Alpha Mead Partners.
Developers also try to catch the attention of buyers with state-of-the-art facilities available in the office building such as public cybercafé, recreation centers, car bays, gym, fighting component etc.
Meanwhile, chances are high that more high-rise structures will hit the market particularly in Ikoyi in the next couple of years despite the fact that the broader economy is stuck in a low growth cycle which has crimped real income.
But experts say periods of economic downturn or gradual pick-up is the best time for investors to put in their funds on real estate assets to leverage value appreciation before market booms.
“This is the most appropriate time to build such that when your building is completed, by then the market would have grown rapidly,” said Yemi Stephen, a partner at Estate Links in earlier comments to BusinessDay.
Vacancy rates for prime office spaces are at high levels. Asking rent for Grade ‘A’ space has tumbled in both asking and achievable rents from about a $1000 to about $850 per square meter. This trend might linger further as supply is expected to maintain tempo in near-to-medium term.
ISRAEL ODUBOLA
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