Marginal rent recovery fuels optimism in property market
Unprecedented correction in the property market is making landlords who originally seek out corporate tenants, for their properties, to prefer individuals (single) tenants, who can afford the rents, according to newly released Ubosi and Eleh Company’s Nigeria Real Estate Report 2018.
This trend is expected to continue the second half of the year. However, the overall outlook is mildly optimistic, as rents are unlikely to drop any further.But rents will remain fairly stable with the exception of strategically located properties in prime locations, particularly the ground and first floors, which will continue to attract a premium as financial institutions, service providers, telecommunication companies and myriad of retail concerns and fast foods.
The 85-page report predicts an increase in demand that will continue to grow stronger as the year progresses. This outlook is predicated on economic growth as the country moves out of a recession, the higher oil prices, complementary growth in businesses as a result of same, and the continuous pressure on the limited stock of housing.“If the economy continues on the upward trend as the country exits from recession, there is a possibility of a very slight but not significant positive move for rents. This is predicated on the run up to the 2019 elections, as campaigns intensify, and more money is released into the system.”
The report says, the issue of conversion of residential properties to commercial uses in prime locations will continue. This is because a lot of businesses who cannot afford to pay the rent of the A and B Class developments will gladly pay a small premium over market rate to locate in a prime but accessible and popular secondary location.
There will also be the case of these properties offering smaller spaces even at a premium to start ups or existing businesses. Some of these locations include properties off the major roads in Lekki, GRA Ikeja, Surulere, off Adeniran Ogunsanya Road, Ogudu Road all within the Lagos environs.On warehouses and logistics, the report noted that many operators are still very cautious committing fully to their maximum production capacity because of mixed signals and policies from the Federal Government in terms of direction and support.
2018 will however witness a slight increase (less than 8per cent) in demand for warehousing. Rents are likely to remain at current levels and as witnessed in 2017 involving commercial real estate, many renewals may be undertaken at even reduced rents, as Landlords struggle to retain tenants and tenants struggle to remain in business and find a balance between their current space occupation and actual needs.
One of the partners of the company, Mr. Chudi Ubosi said; “We project that if there is a noticeable uprise in the level of economic activities, then the latter half of the year will witness greater uptake of warehouse space, but will still not lead to a noticeable increase in rent.“The average wait time to conclude a lease of a warehouse has continued to increase basically as a result of low demand. Between 2015 and 2016 the average wait time was in the range of 60-90 days, towards the end of 2016 it had doubled to 150-180 days and in 2017, there were still many warehouses that remained in the market for upwards of 300 days and going into 2018.
“It may need to be pointed out that apart from the lower demand, the reluctance of property owners to reduce rentals for these warehouses also helped contribute to a large percentage of them remaining in the market for these long periods of time.Warehouse rates in Lagos are in the range of N 1,200- N1, 800 per square foot and increase with proximity to the ports.”
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