Achieved rentals otherwise known as agreed rent in Nigeria’s formal retail market rose by 35.5 percent in the second half of 2022, new report findings show.
According to the report by Broll Property Group, an African commercial property services company, average achieved rent grew to $56/m2 per annum in the second half of last year from $35/m2/annum in H1 in the core location in Lagos and Abuja, where most of the country’s retail activity is concentrated.
“The hike in rent might be another factor that led to an increase in the number of exits in the core market coupled with the surge in energy costs and an unstable economic activity,” it said.
It said the secondary market’s rent remained unchanged and most of the transactions were concluded in the local currency (naira), with exception of a few in the core location.
Energy prices skyrocketed last year as a result of the Russia-Ukraine war. Diesel prices, which are deregulated in Nigeria, jumped by 183.7 percent to N817 per litre in December 2022 from N288 per litre in January, according to the National Bureau of Statistics.
The sudden rise in the price of diesel, which powers a large part of the industrial and commercial activities in the Nigerian economy, had its ripples felt throughout the economy, from manufacturing giants through medium-sized enterprises to small-scale organisations.
The increase in energy cost was also one of the major contributing factors to the country’s inflation rate which is at the highest level in 17 years.
“Rent is expected to surge higher if the energy cost is not controlled leading to tenants opting out or asking for more concession on electricity cost which is not a normal market practice,” analysts at Broll said.
The report also revealed that new leases signed in both core and secondary markets dropped by 53 percent to 3,544.8 in H2 from 7,611 leases in H1.
“A global surge in energy costs had a significant impact on the retail sector, with many businesses facing financial difficulties or uncertainties due to a sudden increase in energy with market fundamentals held fast as businesses are forced to look elsewhere,” it said.
It said this subsequently led to a decrease in demand for new leases as businesses look to cut costs and conserve capital. “Additionally, Nigerians’ continuous adoption of e-commerce and online shopping has also played a role, as some businesses may be shifting their focus toward digital channels rather than physical retail locations,” added.
The Broll report highlighted that the nationwide vacancy rate which dropped by one percent in the formal retail market could be seen as a positive sign for the industry, as it indicates that there is increased demand for retail space.
“However, trading rates dropped to 84 percent from 91 percent in the first half of the year. An eight percent drop in trading was caused by a variety of factors, including economic uncertainty, changes in consumer behaviour, disruptions of business, or increased competition,” it said.
The report projects that the election outcome will determine how resilient the retail market can be as they expect a rough transition that may lead to further deterioration of the economy.
“This could further impede the market from reaching its potential and a continuous disruption in some secondary markets is expected to continue depending on the outcome of the election.”