Political stability rekindles demand in Nigeria’s property market

AFTER a sluggish housing market that left the players bruised over the election period, a new report released last week has revealed that stronger confidence and investment appetite in the second quarter, helped stimulate the sector for the first time in 2015; the unexpected peace and calm has rekindled new demands.

The new analysis, named Nigerian Real Estate Market Review by North Court Real Estate shows that real estate activity was not as intense as previous periods due to   other topical issues such as Central Bank of Nigeria’s (CBNs monetary policies, fuel scarcity, rising inflation and political uncertainties.

“These economic and political upheavals were too consecutive and far-reaching for business to continue as usual. Land prices either stayed the same or improved only slightly. In some isolated cases they reduced.

“A lot of planned developments have been halted while on-going constructions continued at a slower pace as either materials and labour costs needed to be re-priced or factors such as feared political uprisings and fuel scarcity kept workers away from the construction site.”

The report points out that first half of 2015 was one of the toughest times the nation has seen in over a decade, but the news of a new government in second quarter stimulated the sector.

The Guardian learnt that prospects for Commercial Real Estate (CRE) in 2015 are bright based on strengthening economic growth, solid job creation, low interest rates, declining vacancy rates, rising rents, and modest new constructions. The report noted that the performance of both the residential, office and retail parts of the real estate market are expected to continue to benefit from the renewed demand in the sector.

Accordingly, the report also shows that over the past 12 months, the narrative for the prime office market in Lagos has changed significantly as large additions to the total stock has put pressure on rentals. Recent and imminent completions such as NIPOST Towers, 100 Pier Point, Civic Center Tower, Heritage Place, Landmark Tower and Temple Tower have added over 60,000square metres to the office space market in Victoria Island and Ikoyi.

Reports show a slight fall in rentals of three per cent and four per cent for Victoria Island and Ikoyi respectively. “Increasing supply appears to be giving tenants an edge at negotiations, placing negative pressure on rents as landlords clamour to secure occupiers for their large investments. Other regions like Lagos Island, Yaba and Ikeja have not felt such pressure as there is only limited prime space in these regions.”

For Ikeja, this has resulted in the construction of many speculative (relatively) prime developments coming in at rentals of N45,000 per sqm which are slightly above the market (N30,000). One recent completion is the Landmark Place, which has Procter and Gamble, Bosch and Nielsen as the main tenants.

The North Court Real Estate report signed by Chief Executive Officer/Director, Real Estate Advisory, Tayo Odunsi said: “Oil price volatility in recent quarters has also meant that previously strong office space demand from Nigeria’s largest industry is also falling. Oil companies, which have been noted as key occupiers in Lagos are reducing their demand leading to reduction in the take up of new properties.

The Port Harcourt office sub-sector can be best described as informal. The growing A-grade blocks that now dot the Abuja and Lagos skylines are not commonplace in the oil city. The best spaces are found on Olu Obasanjo road, Stadium road, Aba road and the lower end of Trans Amadi road.

According to the report, in the next 12 months, economic activity would need to increase rapidly to ensure there is not a surge of prime office space vacancies in Lagos. “With oil prices staying constant at $60 levels, new fields may go into production and lower production costs/barrel, thereby causing a rebound for the sector which is Nigeria’s biggest real estate patron yet.”

Nigeria’s residential market continues to recover with improved sales figures as a result of the recovering economic and political sentiment. For instance, land values continued to soar in the first half of 2015 in comparison to last year. On the other hand, built up property experienced a decline in prices in some nodes. Particularly, in the high- end markets demand is visibly low, tenants are much more price-sensitive and determined to ensure each Naira or Dollar goes much further. Recent legislation by CBN that no goods or services in Nigeria should be Dollar denominated sent panic to developers and landlords in that space (high-end).

The report said: “Lagos real estate is often broadly classified location-wise as island and mainland. In recent times, property on the mainland has enjoyed faster take-up when compared to the island. This may be fuelled by fewer new builds, proximity to seat of government and relative ease of constructing on the mainland in comparison to the island due to lower foundation costs, cheaper labour and better amenities (roads, water and power supply).

“This does not belittle the extent of development seen on the island. If at all, development has been too rapid and now results in unbearable traffic congestion, higher living costs, gentrification of major high streets and sadly the emergence of slums. Significant demand is pushing residential owners out of streets like Admiralty way, Fola Osibo, T.F Kuboye and Agungi road to make way for retail and office uses which are willing and able to pay more.”
In Port Harcourt, practitioners recant the good old days when prime rents were as high as $120,000 for a three -bed apartment in high-end areas such as old GRA. The despicable acts of kidnapping which became rampant in 2007 almost destroyed the market as a lot of organisations relocated to Lagos and Abuja.

However, with the inhumane acts now significantly on the decrease, seemingly maximum security estates with very good infrastructure and amenities have sprung up. Estates such as Heliconia Park Estate and Intels Camp are examples of such high end developments which have enjoyed good demand. However prices and occupancy rates are still not as high as the pre-militancy days. A lot of workers and expats still prefer to commute by air to the oil city for a few days each week, lodging in short stay apartments or hotels during their stay.

A number of mid-market estates are also under development in Port Harcourt. These include Rainbow Town, Rivtaf Golf Estate, BICS suites and Lekki Gardens PH. Land values in the oil city have been on the rise following the improving socio- economic stability and a new demand for site and service schemes being offered by a number of small and mid-sized development companies.

Nigeria’s retail property market is still receiving strong interest from investors inside and outside Sub-Saharan Africa, as a large deficit in the amount of formal retail space appears attractive.

Retail rents have remained stable in all regions from 2014 to the perod under review. However as supply rises this may begin to change.

For instance, in the past 12 months, four malls including Port Harcourt Mall, Ado Bayero Mall, Ibadan Mall and Delta Mall have opened providing what is regarded as the first formal retail space in most of these regions. Being the key cities in Nigeria, Lagos, Abuja and Port Harcourt are receiving the most attention. However cities in the South Eastern region of the country like Asaba, Warri and Onitsha are seeing flagship malls in close proximity.

Lagos, Abuja and Port Harcourt typically have the largest and most number of malls. While previous malls were smaller, solely anchored and less professionally managed, the new builds have better parking, central HVAC systems and attract both international and national retailers.

Port Harcourt Mall and The Palms Ibadan have been very good testimonials. The tenant take-up appears to be optimal and retail footprints are high almost at every time of the day, having a good mix local and international retailers.

The outlook and current development pipeline for retail space is significantly rich across the country. Over 220,000sqm of gross lettable space is expected to come on the market within the next 48 to 56 months.