• Monday, July 15, 2024
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Vacancy rate drops 24% in Nigeria’s prime office space market

Hybrid work, AI dilemma top office space investors, employers’ concerns in 2024

Prime office space suppliers or landlords are optimistic about the market returning to similar levels of activities recorded before the global Covid-19 pandemic, a new report has said.

The optimism, according to the report, arises from improved business activities which have triggered increased demand for space and reduced vacancy rate.

By the end of the second half of 2022, vacancy levels at prime or grade A office facilities had declined by 42 percent at the beginning of the first half of the year to 24 percent, representing 57 percent drop.

“To retain their existing tenants and attract new ones, landlords are implementing a number of measures and concessions including rent reduction, flexible leases and rent-free which are not normal market practices,” Bolaji Edu, CEO, of Broll Properties, said.

He recalled that, within the period, several inquiries circulated in the market as a result of existing tenants at prime-grade buildings looking at benchmarking and exploiting offers to renegotiate their current leases for more favourable terms.

According to him, the office market saw a dip of 19 percent in new leases signed in H2 2022 as it continued its recovery, pointing out however that a high quantity of leases was signed in H2 2022, reflecting a fraction of the volume of inquiries made in the market with Victoria Island driving the market by recording 54 percent of the total leases while Ikoyi recorded 46 percent.

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In spite of everything, Edu noted that the market was driven by tenants’ preferences, adding that it is a race among the landlords who could best provide these preferences and would have the advantage of attracting more tenants.

“Although these are not typical market practices, we are in a dynamic and peculiar market that has evolved. The pandemic introduced non-traditional practices which are forcing modern-day practices such as hybrid systems and sustainable practices. We observed the emphasis tenants placed on flexible leases, accessibility, a safe environment, and security at the top of their priorities when considering acquiring a space,” he said.

He explained that a flexible lease gave the tenants the option to opt out of a long-term lease, saying that traditional leases ranged 5 years and more, but tenants were looking at shorter leases where they could easily adjust their current requirements based on performance preference change.

“Additionally, in terms of flexibility, occupiers are seeking co-working and hot-desking solutions that significantly reduce their take-on costs and set-up period, as a way to manage workplace set-up for the short to medium term,” he pointed out.

Looking at the current market fundamentals, Edu said there was a strong possibility of sustained demand in the prime and grade-A office market over the next six months, adding that the expectation was driven by factors such as strong economic growth, favourable regulatory policies, and positive business sentiment.

He noted that these factors were expected to create a conducive environment for businesses to expand and invest in premium office spaces, which will drive the demand for prime and grade-A office properties. However, external factors such as geopolitical risks and election outcomes could have an impact on this projection.