Growth in short-let rentals increasing investors’ interest
20 February 2023 | 4:06 am
The rising expenditure on travel, tourism and travellers’ inclination toward budget-friendly accommodations is driving growth and high demand for short-let apartments in Nigerian cities.
Short-let apartments in Lagos
The rising expenditure on travel, tourism and travellers’ inclination toward budget-friendly accommodations is driving growth and high demand for short-let apartments in Nigerian cities.
Short-let apartments are properties considered as alternatives to hotels, which can be let out from weeks to a few months and even a year depending on demand. Such offerings could range from studio apartments to bedrooms, duplexes and bungalows.
The businesses have continued to enjoy an estimated 200 per cent growth as daily demand increases compared to the residential and hospitality markets, The Guardian investigation revealed.
The attraction to the sector hinges on comfort, aesthetics and offering of luxury facilities. In meeting customers’ needs, apartments tend to be larger than standard hotel rooms with kitchen, as well as facilities like internet, 24-hours light and water, air conditioning, security, fully furnished, access to Digital Satellite Television (DSTV), Closed Circuit Television for security, parking spaces, washer and dryer.
The global short-let rental market size is valued at $99.38 billion as of 2021, which is expected to grow at a Compound Yearly Growth Rate (CAGR) of 11.1 per cent till 2030; the increase in short-let apartments’ adoption is attributable to strong income profile and ease of access to investors, operators and tenants.
Short-let apartments in Nigeria leveraged the Covid-19 lockdown, a period when most hotels were out of business and were forced to close their doors to occupants, to record breakthroughs.
There has been increasing ongoing development of short-let properties in Abuja, Port Harcourt, Ibadan, Lagos and other locations. Specifically, in Lagos, there are over 2,000 short-let projects championed by various developers.
According to Pan-African real estate data firm, EstateIntel, the Lagos short-let market has grown by 263 per cent over the past three years. In a report obtained by The Guardian, entitled: ‘Boom or Bust? Lagos Short-let Market’, the said the growth was mainly driven by rising demand for long and short stay in apartments.
Other reasons adduced for its performance are that short-let serves as alternative to ‘typical’ tenants, strong income profile for investors, patronage by younger demographic with short-let emerging as a cheaper alternative to hotels and the ‘diaspora’ effect.
The eminence of the short-let market is a deeply embedded trend to the Lagos residential market. The emergence of this niche is essentially a backward correction of the market that is not accustomed to monthly rentals. The low barriers to entry for people to furnish and deliver apartments to the public on a daily and monthly basis, brought out pent up demand that was underserved by a rigid yearly rental payment market.
There has not been an option with such flexibility before. Rising demand in the short-let space has been matched by an increase in supply in the market. Generally, the short-let segment has emerged as a strong performer.”
It further said Nigerians in diaspora have been a key driver of the seasonal nature of short-let demand that has seen occupancy levels peak during major holidays and record lower levels in off peak seasons such as between March and July.
Research and Insights lead at EstateIntel, Tilda Mwai, said: “The sheer amount of interest we have seen in the space over the past year points to a potential market saturation. Even though we are confident in the opportunities the short-let market has to offer, we’d encourage new players looking to enter to take time and ensure that their projects are differentiated or can remain competitive in a high supply environment.”
Findings show that Ikoyi, Victoria Island, Lekki Phase 1 and Ikeja have emerged as the top short-let hubs in Lagos, while Lekki Phase 1 has emerged as a stand out performer, maintaining considerably higher occupancy levels at 80 per cent compared to 60 per cent and 70 per cent recorded in Ikoyi and Victoria Island.
The demand for short-let rentals declined in 2020 due to the COVID-19 pandemic. According to the statistics published by World Tourism Organisation (UNWTO), the COVID-19 pandemic caused a 71 per cent decline in tourist arrivals in 2021 and 72 per cent in 2020, compared to 2019 representing a loss of 2.1 billion international arrivals in both years.
According to Market View Research report, increased demand for international travel in emerging markets followed by low airfare prices across the globe will boost the industry growth.
In addition, key players are listing a variety of short rental stays, such as private homes, villas, beach houses, and apartments to attract millennials and travellers looking for aesthetic outlets. This is expected to boost the real estate industry’s development, thereby supporting market growth.
Besides, consumers’ knowledge of services and offerings is growing as a result of the internet and social media. Special services, exotic places, and amenities are being offered, specifically for female visitors, by key firms to capture a higher market share.
Essentially, there is a boom in the short-let business, as prices are becoming competitive. One-bedroom in Lekki Phase I ranges between N35, 000 to N45, 000 per day and longer stay attracts discounts. Price for a two bedroom can range between N50, 000 to N60, 000. In the mainland it is the same rate but it depends on locations.
In Owerri, Imo State, three bedroom deluxe apartment goes for N70, 000, while luxury three bedroom apartment and five bedroom are rented at N85, 000 per day and N165,000 respectively.
Speaking on the phenomenon, the Managing Director, Mausi Realty Lagos, Mausi Bababunmi, said the boom is real as about 90 per cent of clients are young and mobile entrepreneurs. He noted that the business is lucrative and thrives in mainland and Island areas in Lagos.
Mausi, who operates short-lets in Lekki and Omole, said the growth rate is about 200 per cent, adding that with a good capital base and investment, clients are always available for patronage.
He said: “If you are paid a yearly rent, within six months, you can recoup the return on investment. As an operator, I wanted short-let accommodation for my mother in Omole. I discovered that people, who spend between two-to-three months took 95 per cent of the vacancies.
However, he said there are challenges to the business. This, he said, includes the cost of providing power, security, theft of facilities and unfortunate circumstances like death of customers.
Mausi, who described investment in short-let accommodations as a means of meeting the needs of the people, said the government could support young entrepreneurs investing in the sector with grants/loans to cushion the effect of shortage of housing in the country.
Government, he said, can also partner with some of the operators to expand their businesses.
The Managing Director, Starlight Homes, operator of short-let apartments in Port Harcourt, Akudo Okpo, said short-let apartments are now a trend in the real estate market due to its unique features.
She said it offers people more comfort than hotels because it is like living in a home, where you can have access to kitchen to cook your own meal, a big parlour, dinning, host business meetings in your space and more space to operate.
Okpo said although the price could be high especially, for apartments located in strategic locations. However, occupancy rate can be as high as 45 per cent in locations like Port Harcourt, for those who want luxury or comfort.
She said: “People have started embracing the short-let apartments, especially, oil company workers, people that return from abroad and high profile individuals.
“Companies hire the apartments for them. Every other person would like to go to a hotel. Sometimes, a room can be as high as N35, 000 or N50, 000 per day, depending on how spacious, or the area, where it is situated.”
In Port Harcourt, the challenges to operators, Okpo said, is low patronage due to the current poor economy and lack of electricity as most of the operators run generators 24-hours.
“Except for those you can afford alternate energy sources like solar. It is regrettable that the government rarely offers support for businesses in this part of the world. Government should provide the enabling environment for businesses; ensure security of life and property.
“I think partnership among operators is better for those who plan to invest in the sector. You need financiers and partners, who are interested in this kind of business. The return on investment is tangible because if you put the building in good condition, people will patronise it,” Okpo said.
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