As yield-hungry investors hunt for investment asset class to put their money, experts say there are three sub-sectors of the real estate where opportunities exist for investors. These are warehousing, student accommodation (hostels) and, to an extent, real estate investment trusts (REITs).
The experts note that opportunities will continue to open up in real estate sector, predicting that future growth will come from the listed subsectors which are expected to attract institutional funding.
In warehousing, the last 12 months saw positive industrial real estate fundamentals drive asset values to record highs. This was amplified by the COVID-19 pandemic, which hastened the move to online retailing, intensifying the pressure on logistics frameworks.
This shift has continued well after the pandemic has subsided, meaning that opportunities exist for investors in this segment of the market.
Ayo Ibaru, director, real estate at Northcourt, confirms that Grade A warehouses which provide an opportunity to mark rents to international benchmarks are particularly attractive. He pointed out, however, that the question of where to locate a warehouse has historically been a trade-off between low cost but easily accessible facilities, road transport networks and final product destinations.
“Demand for logistics and last mile distribution centres are likely to remain strong investment opportunities for most of 2021,” he predicted in a recent report.
While the COVID-19 pandemic with its lockdown measures lasted, demand for student housing dropped. Rental yield came down considerably. These were made worse by the 9-month old ASUU strike during which student hostels were vacant and yielding no income.
But the story has changed. With a few exceptions like UNILAG, students have returned to school and enrolment is rising. Demand is picking up again and, according to the experts, this will continue to be a growth area for investors.
For purpose-built hostels, rents are quite high, according to Student Accommd8, a major space supplier in Lagos which has already provided over 400 beds across three sites.
For instance, rent in its facility in Pan Atlantic University (PAU) campus along Lekki-Epe Expressway is as high as at N850,000 per annum for single bed space. The company charges N700,000 for a double bed space, and N580,000 per student for a room with four bed spaces.
Omotoyosi Belgore, the company’s chief operating officer, told BusinessDay that students were spending, on the average, about $1000 every year on hostel fee and, specifically in Lagos, students spend about $300- $360 for a bed space per annum, that is, for the ones that are semi-furnished.
The good news here is that students are paying promptly, meaning that investors recoup their investments in good time unless there are disruptions like the pandemic and prolonged ASUU strike.
Added to this, student housing as an investment asset class can generate about 22 percent returns which is more than double what commercial real estate gives and more than the 4-5 percent returns per annum on residential real estate, according to Abayomi Onasanya, Founder/CEO of Student Accommod8.
Godwin Asuelimen, head, Core Product, Propertypro.ng, affirms that investment in student hostel is viable, especially in areas with high number of tertiary institutions. He added that “it is a booming market and something that is growing at the moment.”
Another growth area for investors in this sector is the Real Estate Investment Trusts (REITs). But experts who spoke at a webinar on ‘Real Estate: Innovative Financing Solutions Post COVID-19’ hosted in Lagos by Hakeem Ogunniran, the founder of Eximia Realty Company Limited have their reservations.
According to them, for investment in this fund to be viable, the operating environment must improve for investors to maximise rental income and ensure capital appreciation. They urged regulators to provide cheaper process of registering property and providing basic infrastructure for developers in the industry.
“Clear regulations by government on how REITs should work will boost its performance and encourage more investors to commit funds to such an asset class,” Ifeoma Ezeokafor,” principal investment officer at International Finance Corporation (IFC), said.
Ezeokafor reasoned that providing more information about REITs to investors and setting up REITs associations in the country would go a long way in enhancing productivity.
Adeniyi Adeleye, head, real estate finance-Africa regions at Standard Bank Group, shared this view, adding that economic sustainability and enabling environment for building cheaper houses for people to buy in were important for investors.
Adeleye was not happy with low mortgage penetration in the real estate sector, advising that government should bring down the cost of construction to make it more attractive for more investors.