Office market hurt as hybrid work preference grows

The Nigerian office market has been hurt by several challenges, including employees’ growing preference for hybrid work that has seen employers reduce their space requirements.

For investors in large-sized office buildings, it does seem that the effect of Covid-19 is not yet over as these buildings have continued to record low occupancy rates which started when social distancing rules were observed during the pandemic.

The office market is adjusting to the shift in demand, from large office spaces to small-sized flexible office spaces, typically prevalent in low rise office buildings, residential buildings conversion and coworking spaces.

For reasons of the employees’ preference for hybrid work, many firms are embracing flexible work models to retain talent. Occupiers’ location preferences remain strong for Victoria Island, Ikoyi and Lekki in Lagos. These are areas with good infrastructure and easy connectivity in terms of transportation, meaning that they are good investment destinations anytime.

According to a recent report on the office space market in Nigeria, Grade A occupancy rates are at record lows due to oversupply. The report says the first half of 2023 saw take-up from coworking operators and tech firms. “Requests are increasing from microfinance and digital banks looking to either set up a physical office space or merge smaller office spaces,” the report said.

To underscore the growing investor interest in the coworking space, the report revealed that Regus, a serviced office provider, opened a new coworking space in Gbagada, its eighth location in Lagos. Ventures Park opened its first Lagos centre in Mansard Place, Victoria Island. A new coworking provider, The Adrenalina, began operations in the first quarter in Yaba.

David Mbah, co-founder/CEO of MDS Properties, told BusinessDay that the rise in the demand for co-working space was driven chiefly by flexibility in occupancy and the convenience in rent payment. “Here, we pay rents per months, meaning that you can move on if the place no longer appeals to you,” Mbah, whose office is one of the coworking spaces in Ikoyi, Lagos, said.

Over the years, the office market has been groaning under the weight of supply overhang, leading to significant drop in occupancy rate and also in both asking and achievable rents from over $1,000 per square metre (SQM) to between $700 and $750 per sqm.

Ayo Ibaru, CEO of Northcourt Real Estate, said the completion of Centre Point in Ikoyi has added 18,500sqm to the existing supply stock of Grade A office buildings while the office segment of the N12-billion 14-floor Trinity Towers was also added to prime office stock.

“Construction Kaiser completed the LAPO microfinance bank building in Maryland, Lagos. The building is an eight-story commercial structure with multifunctional floors,” he said.

According to him, the integration of sustainability features in the global property market is the adoption of green certifications, and the entry of international concerns with sustainability goals has also influenced leading local firms.

He said property managers were focusing on optimising energy, water and waste efficiency to improve occupier satisfaction and attainment of green certifications. “United Bank for Africa signed a long-term power agreement with Renewvia to design, finance, own and operate solar microgrid systems for its branches,” he said.