Why price alone isn’t the value in commercial real estate investment

Over the years, market dynamics have shown that many investors make the mistake of thinking that value in commercial real estate is in price alone, losing sight of other factors that make investment in that segment of the market viable.

Experts frequently offer useful investment insights that could shape how investors build real wealth. They note that many real estate investors make the mistake of chasing cheap deals instead of viable ones.

The experts explain that, besides price, investors in commercial real estate should also consider location demand, rental income, and long-term growth potential. These too constitute value in that market.

New insights emerging from the Nigerian real estate market show that Lagos rental markets, including commercial and residential, have seen consistent price and rent appreciation, with property values rising citywide at about 5-15 percent annually and mid-market rents averaging 6-10 percent in key developing areas.

Well-located shops in fast-growing areas like the Lekki-Ajah axis typically earn between ₦1.5 million and ₦2.5 million per annum in rent, depending on the size, at an average of ₦2 million yearly, which is about ₦10 million in rental income over five years.

But the bigger win is capital appreciation, because at a conservative 7 percent growth rate, a shop bought today along this corridor at ₦30 million can be worth about ₦42 million in  five years.

This is why smart investors focus on well-planned, high-demand shopping complexes, which are easier to rent, easier to resell, and secure.

Any prospective investor who is therefore thinking about building a stable income and growing wealth through commercial real estate should consider this route, which ultimately leads to a good return on investment.

A good location for this kind of investment in Lagos is  Lekki Phase 1, which has emerged as the leading managed office hub, accounting for 18 per cent of total supply, ahead of Victoria Island, Ikeja, Yaba and Ikoyi.

A recent report by Fortren and Company explains that  Lekki’s rising dominance is due to its proximity to fast-growing residential communities, relatively lower operating costs, strong demand from startups and SMEs, and the availability of lifestyle infrastructure supporting the live-work-play concept.

In the Federal Capital Territory, Abuja, the report notes that about 40 percent of tracked managed office supply is concentrated in Wuse, followed by Maitama, the Central Business District and Gwarimpa.

“Regionally, demand for managed office spaces remains relatively widespread across Nigeria, except in Port Harcourt, where over 60 per cent of demand is concentrated within the Greater Port Harcourt metropolitan area,” the report points out.