After over 12 straight quarters of low activity in transactions and a high vacancy rate arising largely from COVID-19 impact, office market fundamentals in Nigeria are improving in 2022, with rapid growth in the technology sector driving occupier demand.
This has raised hope for a market that has been hitherto struggling with 324,015 square metres of pipeline office space, representing over 25 percent of existing stock estimated at 324,015 square metres. This presented a worrying outlook for the market by the last quarter of 2021.
Within the first quarter of 2022, in the A-grade or prime office segment of the market which was the worst hit by social distancing rules and work-from-home (WFH) policies adopted by some organisations against COVID, about 3,678 square metres transactions were recorded.
A recent market survey by Estate Intel estimates new leases signed during this period at 73 percent, with the technology sector leading demand uptick. The survey shows that Ikoyi in Lagos has once again proved to be a preferred location for occupiers as it accounts for over 50 percent of the new leases signed.
“In the next quarter, we expect to see even stronger occupier activity coming from the tech industry. The energy and telecoms industries are also expected to drive activity in the coming quarters,” Dolapo Omidire, Estate Intel CEO, confirmed to BusinessDay.
Experts say that growth in the tech sector across Africa is currently at an all-time high, with the sector estimated to hit $7 billion in 2022 in funding, up from just $25 million in 2015. In addition, the continent now has seven unicorn companies ($1 billion dollar valuation), from just one in 2019.
Omidire described the tech sector as a key driver of formal office demand, saying that while the office market had continued to evolve over the past year due to the pandemic, technology had remained the core driver for hybrid and remote working policies.
According to him, while tech companies themselves have also been at the forefront of driving flexible working among their employees, occupying a formal working space remains integral to the majority of these companies.
He cited the top 50 tech companies, including start-ups and multinationals, which Estate Intel surveyed across Lagos, Nairobi and Johannesburg, with a finding that 94 percent of these companies occupy a formal working place.
Eighty-five percent of the company, according to the survey, occupied leasable space, with 3 percent occupying co-working spaces, 4 percent occupying owner-occupied offices, and 6 percent was fully remote companies.
Meanwhile, the flipside of the COVID-19 impact on real estate shows a relative increase in demand for luxury residential homes. BusinessDay findings show that this segment of the market is increasingly gaining traction in terms of the uptick in demand.
Demand here is driven by two major factors including an increase in the number of high net-worth individuals seeking to own multiple homes and new portfolios, and the fall in the value of the naira relative to the dollar which has given Diaspora buyers an affordability edge.
Besides insecurity that forced many buyers to seek more secure neighbourhoods within gated communities, the impact of the pandemic also caused working-class homeseekers to see the need for better homes with access to facilities that encourage WFH policies. The needed facilities are a steady electricity supply and stable internet connections.
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The fall in the value of the naira relative to the dollar, for the most part, has made the purchase of houses more affordable for those in the Diaspora who have easy access to the dollar, leading to an increase in demand.
Lagos, Abuja and Port Harcourt, in the last quarter, recorded an increase in sale prices between 10 percent to 12 per cent across the prime neighbourhoods in those cities, according to Knight Frank Nigeria.
The leading estate agency services provider listed motivations for the price increase as adequate security and power supply as well as the quality of houses in these areas.
In a telephone interview, Frank Okosun, the company’s chief executive officer, told BusinessDay that the real estate sector would record 1.5 percent growth within the first quarter of this year, citing the tempo of activities in the sector within the first two months of the year.
Okosun expects a gradual increase in the demand for prime real estate, but not necessarily the super-luxury class. “An expanding middle class desirous of quality housing will fuel an increase in demand,” he said.
“As long as the offerings continue to match the expectations of the home buyers, demand will remain sustainable. The growth of this demand is likely to be muted by the state of the wider national and global economy,” he added.
Odunayo Ojo, CEO of AUC Property Development Company (UPDC), shares this view, pointing out however that his company, which is making a bold re-entry into the residential market, is guided by cautious optimism.
According to him, as against the premium or super luxury offerings, which were UPDC’s trademark, they would, this time around, be looking at mid-income housing, though still in the luxury space. Ojo believes that good build quality remains the hallmark of luxury residential homes.
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