As economy wobbles, property owners convert offices to apartments

Investors in the real estate market are worried that transactions in the office segment are declining as existing facilities are empty or half-occupied; hence, developers and landlords are converting offices to residential housing and short-let apartments to recoup investments, writes VICTOR GBONEGUN.

Major investors in the real estate sector, especially the commercial segment of the market have begun to seek new ways of recouping their investments, following the changing dynamics of work and macro-economic factors, which are increasing availability of unused or underutilised office spaces in major city centres.

The trend has made investors convert unused space to mixed-use developments, such as residential housing, and short-let apartments. The reality is that many people are still not returning to the office or at least not nearly as often, a development that has profound implications not only for office owners, managers and brokers, but also for investors.

Most organisations are yet to recover from the poor economy as they continue with flexible work schedules, adopting Work-from-Home (WFH) and hybrid work models of COVID-19 era to stave off rising operation challenges like power and transportation cost for staff, thus, leaving many office buildings empty.

A report by Knight Frank ranked Lagos among the 12 top most expensive office markets globally, alongside other cities that include Singapore, London, Hong Kong, and even New York as of 2011. This was at a time the office market was at its peak.

It was gathered that a 500sqm office in Grade A and B-Grade buildings within locations like Ikoyi and Banana Island starts from $526,000, and $940,000 respectively. But the situation is different now and tends to favour the tenant because supply has grown and the economy has weakened.

The office segment of the real estate market is experiencing a difficult time as some buildings still record increases in vacancy rates fostered by rising inflation and high rent. Unoccupied office buildings are becoming candidates for reinvention by developers and owners amid struggle to recoup investments.

Since 2022, major office buildings In Idejo street, Adeola Odeku, Adetokunbo Ademola in Victoria Island recorded empty occupancy or not fully occupied while others have been converted to hotel and other uses. Up to 50 per cent of the office spaces were empty for upward of six years.

Findings revealed that in locations such as Victoria Island and Ikoyi that boast of many Grade A and Grade B office spaces constantly joining the pool of existing ones like the Wings Towers, Greystone Towers, Heritage Place, Pier Point, Nestoil Towers, Centre Point, amongst others, there are degrees of voids. The same situation applies to office buildings in Tinubu and Balogun axis of Lagos Island.

The Guardian learnt that one creative solution being deployed to such office buildings is just to turn them into apartments/mixed-use facilities.

The concept of office-to-residential and other use conversions is hugely attractive for building owners and investors, who might otherwise be stuck with defaults. Major properties in cities like Lagos, Abuja, Kano, Port-Harcourt, Ibadan, among others are trailing the blaze in this regard.

For instance, in Lagos Island, the 21-storey Unity House, an office complex located at 37 Marina, Lagos Island Central Business District owned by Wemabod Limited, one of Nigeria’s leading Real Estate firms offering services in property development and property management is being repurposed.

The building, which had a total of 5430 square metres of lettable space and
an internal parking space to accommodate about 50 to 60 cars, will see its redevelopment transformed into a mixed-use facility housing 81 tastefully finished one-bedroom and two-bedroom apartments, offices, retail centres, and banks.

With the predominant business and commercial nature of the environment,
the project seeks to unlock the latent demand for premium upscale residential accommodation in the foremost business district by converting 50 to 70 per cent of the building into two- and single-bedroom apartments for executives and business travelers to the location.

Properties within its immediate vicinity, such as Stallion Plaza, Nigerian Stock Exchange Building, Central Bank of Nigeria Building (within 100m), Elder Dempster (ED) Building, Kingsway Building, First Bank Headquarters’ Building, and UBA Building, among others are expected to benefit from the repurposing of the project.

Speaking on the development, a Professor of Estate Management at the University of Lagos, Austin Otegbulu, observed that in certain part of the Lagos Island, office rent is going down, while shopping plazas are not lucrative, while most of the buildings in the locations are not good for shopping plazas or offices.

He noted some investors now prefer to buy them and convert to mixed-use facilities. “In some of these locations, they are not a place you can walk when you finish from the office at night. Some of the owners now prefer to convert it to short-let apartments and other uses,” he said.

The Chairman, Research and Development Committee, Nigerian lnstitution of Estate Surveyors and Valuers, ‘Dotun Bamigbola, said a major reason for the lull in the office sector is not far-fetched, the office market was down after the COVID-19 pandemic experience.

According to him, most people still don’t see the need for physical offices, while some oil majors like Shell Corporation are yet to fully resume for physical offices.

“They determine when they can be in the office for meetings and most of the other things, they do it virtually. The poor economic climate has also contributed to it as firms with foreign investments have left or are in the process of leaving the country because of microeconomic impact on them like the Foreign Exchange (FX) and inflation.

Most of the ‘Grade A and B’ offices are priced in dollars and huge investments are involved in some of these office buildings. FX has given them a reason to leave. More office establishments still work virtually.”

He argued that the reality of the present situation is that if an investor cannot get a favourable return on investment, it impacts operations and profitability heavily. “Yet, the government is wooing foreign investors to come back but it seems the reverse has been the case so far. The commercial sector and even the ‘Grade C’ offices are affected,” he said.

However, in locations where investors are repurposing office buildings, he cautioned that such moves must be in line with the physical planning regulations.

“Those repurposing facilities and converting to other uses must have looked at their investment options and what is favorable to them going forward. In Lagos, the lsland in particular, you have people working on the lsland and the distance going to Lekki or coming to the mainland after work can impact the working culture. You don’t want to be cut in traffic and so it won’t be out of place for investors to look into the option of one-bedroom development for those categories of people for rentals. Sustainability could be a key issue, but it all depends on the type of structure put in place for building conversion, “ he said.

He noted that mixed-use options can work with necessary approval from authorities and cosy infrastructure put in place as seen in the Centenary City project, Abuja and other locations in Lagos.