Though the real estate market in Nigeria witnessed transactional movements in the first half of 2019, demand activity in the A-grade segment of the market slowed relative to that of second half of 2018 when a number of large transactions were concluded, especially towards the end of the year.
But this is understandable given that, unlike other segments of the market, there is clearly an oversupply of office space and demand is such that much of it came from just a few oil and gas, tech and financial services companies.
Available statistics reflecting the situation in the market shows that year-to-date (YTD), a total of 33,000 square metres were completed while 110,000 square metres space are under construction and expected to be completed and offloaded into the already saturated market by year end.
Construction work on 64,000 square metres of office space has been placed on hold with no foreseeable timeline and schedule for future completion. 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.
These were negative reflections of the market within the period under review, but Broll Property Intel Nigeria’s new ‘office market viewpoint’ notes that while this is the case, the indicators are not necessarily a major drawback as further analysis into the transactions closed in H2:2018 reveal one-off transactions in the oil and gas industry in response to the ramp-up in global oil prices.
“Large transactions, such as 10,000 square metres in a single take-up, were recorded in a market that had mainly witnessed take-up in the 250 – 500 square metres range,” explained Nnenna Alintah, Head, Broll Property Intel Nigeria.
BusinessDay had earlier reported, based on interaction with developers and sector analysts, that the first six months of 2019 was a defining moment for the real estate market which had been on the throes of recession until the first quarter of the year when a 0.93 percent growth pulled it out of recession after 12 straight quarters of negative growth.
The report quoted Gbenga Olaniyan, CEO, Estate Links as saying, “we have seen movements in the market; we may not see what we had in 2008 nor the boom days of 2011 to 2013, but what we see happening now are increased activities and deal closures in the market.”
But this viewpoint agrees with the new Broll Property report, differing only in landlords’ attitudes and reactions in which case most of them still perceive the market to be a tenant’s market and, therefore, continue to offer competitive leasing terms to prospective tenants.
“This is done on a case-by-case basis, especially with the anticipated increased market supply. It is more so the case with developers who have debt servicing obligations associated with their properties,” Alintah noted.
The prevailing market condition has impacted rents in some nodes or locations in Lagos, Nigeria’s commercial nerve centre. Though asking rents have remained fairly unchanged in certain nodes, A-grade properties in Victoria Island (VI) and Ikoyi have recorded marginal declines.
While average asking rents for A-grade properties have declined by 7 percent to US$700 square metres per annum and average asking rents for B-grade products have remained unchanged at US$600 square metres per annum in Ikoyi, Alintah notes that, in VI, average asking rents for A-grade space have declined by 1.5 percent to US$640 square metres per annum and remained unchanged in the B-grade segment at US$450 square metres per annum.
Analysts are agreed in their views on the outlook for the market. They see positive and promising outlook based on rising investor-confidence in the economy. “We see increased investments, leading to uptick in office space by investors outside the traditional oil and gas and service companies;” Gabriel Olawale, real estate investment analyst, told BusinessDay on phone.
Alintah affirms, noting that, in the near-term, demand is anticipated to slow down due to a tapering in the level of enquiries in the market, but in keeping with the ongoing relocations by multinational corporates to higher buildings, over 15,000 square metres of office space could be taken up in the A-grade market.
As for supply, about 27,000 square metres of leasable office space is set to be delivered in the A-grade market by December 2019 and it is expected that this will place further pressure on current vacancy levels.
“Rents are likely to remain flat at best or decline further, especially with new deliveries in the market in the near term. Landlords are less than optimistic about capacity for rental growth in the short term as the market is perceived to be a tenant’s market and will likely strive to maintain a competitive edge with rental rates,” Alintah posited.
CHUKA UROKO
