Nigerian private developers are joining their peers to tackle the oversupply of office space in urban centres by repurposing commercial properties to address vacancy issues and align with changing societal needs like affordable housing, flexible work environments, and sustainable urban living. VICTOR GBONEGUN reports that success depends on proactive planning, policy flexibility, and financial viability.

A growing oversupply of office space is driving a transformative shift in the commercial real estate market, with developers and city planners increasingly repurposing vacant office buildings for residential, retail, and community use.

Triggered largely by the adoption of remote and hybrid work models, demand for traditional office space has plummeted in major cities worldwide. In response, property owners are scrambling to adapt to a new urban reality – one that favours flexibility, affordability, and mixed-use developments over towering, and underutilised office blocks.

According to JPMorgan Chase & Co., in a report, ‘Grappling with Office’s Future’ it revealed that hybrid work is altering the way employees interact, older buildings are seeing more vacancies, and Environmental, Social and Governance (ESG) factors are influencing demand for offices. Class ‘A’ office properties, which are limited in supply, are doing well compared to their ‘B and C’ counterparts.

Specifically, the Lagos office market has struggled with space glut for years, with Ikoyi and Victoria Island bearing the brunt of oversupply, according to a Knight Frank report on Office Market update 2024.

The Guardian gathered that in some cases, it might take upward of two and half years to fill. A 3,000-sqm space and six months for 500-sqm space. Some landlords are exploring and adopting creative solutions of adaptive reuse, transforming under-utilised offices into mixed-use spaces along with lower rates in both old buildings and increasing the housing supply market.

In many urban centres, there is a combination of declining occupancy, an oversupply of older office buildings and higher rent. Firms that need only half of their workers in the office each day, only need a notably smaller office space.

In cities like Lagos, Abuja and Kano, a wave of office-to-residential conversions is underway. Ageing commercial buildings are being redesigned into apartments, co-living spaces, and even student hostels, helping to ease urban housing shortages. Others are becoming mixed-use hubs, blending residential units with retail, leisure, and co-working facilities.

In Lagos, some older office buildings in Central Lagos, Victoria Island and Ikeja are being reimagined as serviced apartments. For instance, Wemabod Estates is currently repositioning its 21-storey Unity House to a mixed-use project. The commercial office edifice situated in the Marina area has remained under-occupied for years. The landmark building is being repurposed to accommodate commercial and retail spaces, co-working workspace ecosystem, and residential needs.

Despite the momentum, experts warn that repurposing office buildings is not without challenges. Zoning laws, high renovation costs, and structural limitations often complicate redevelopment plans. State building regulatory agencies have cautioned that property owners/developers repurposing developments must get fresh approvals or risk being penalised for such projects.

Still, many see this trend as an opportunity to revitalise city centres and create more inclusive, sustainable urban environments. In other climes, governments in some cities are offering incentives to developers willing to take on such projects, seeing them as a solution to both economic stagnation and housing deficits.

However, prime office space rents across key cities have experienced an upward trend in the past three years. The occupancy rate in that market reportedly decreased by four per cent, from 61per cent in the second half of 2023 to 58 per cent in the first half of 2024. Despite this decline, annual rents have slightly increased by 2.05 per cent, rising from $531 per square meter in the second half of 2023 to $542 per square meter in the first half of 2024.

The completion of highbrow office buildings, especially the Grade A, located in Ikoyi and Victoria Island, respectively, have together added 30,000 sqm of new office space to the Lagos office market with prime office rents as high as $80 per square metre.

Expounding on the trend, the Head of Research, Diya Fatimilehin & Co, Tola Oyenekan, confirmed that the issue of oversupply of office spaces in some of the urban centres has been the case for the past five years.

He said that the office market from 2014 to 2019 had on average about 400,000 sqm of spaces coming into the market. However, with the coming of COVID-19, many people reduced their office space use, especially with the advent of co-working spaces competing with office spaces, hence, people started reducing their footprints.

“Someone that used to let 500sqm of office space pre-COVID, reduced it to 200sqm. ‘Work from Home’ is also a major factor. With some multinationals exiting the country, the vacancy rate has even increased further. They used to be the ones that regularly patronise grade ‘A or B’ office buildings,” he said.

According to him, what has become a trend now is a mixed-use development consisting of a work, live and play kind of model, where in addition to the office, there could be a restaurant, laundry, business centre, and cafeteria all coming into a single development.

He noted that what it means is that the developers are diversifying revenue sources rather than having a full-blown office building. “If you make it a full-blown office, the question is, is there a demand for it and to make up for lack of demand in a full-blown office building, you then need to open it up to other uses like a retail, shops and uses to diversify revenue base, which could be called a repurposing model, but there may be need to consider the location whether businesses are still thriving or have moved away,” he said.

However, the Vice President, International Real Estate Federation (FIABCI)-Nigeria Chapter, Ayodeji Odeleye, said the real estate market still lacks enough grade ‘A’ office spaces, adding that the office spaces that are vacant in some of the city centres particularly the grade ‘B’ have become obsolete in terms of some essential facilities, making them not to function well. He argued that the reason for the high level of voids in the grade ‘A’ office category is due to the cost, with some rents denominated in foreign currency and the absence of firms that cannot afford such rents.

“The capacity to pay, facility in the office spaces and operational strategies of firms are key factors. The operational costs for the offices are increasing and the disposable income available for staff after spending on transportation; feeding and other expenses have become low. So, a lot of offices embrace remote operations or working from home for some days and coming to the office whenever they are needed,” he explained.

He said what some operatives do is to convert the vacant office spaces into co-working spaces/shared offices, where people use them for a few hours and pay rather than use them for the entire day.

Odeleye further noted that there are also instances where vacant office spaces are converted to hubs, showrooms, eateries, and joint-hospitality businesses as a result of increased demand for such uses.

The Chairman, Rivers State Branch of the Nigerian Institution of Estate Surveyors and Valuers, (NIESV), Nwokoma Nwankwo, enumerated critical factors that attract people to take up commercial office spaces and do business in cities. This, he said, includes how strategic the location is, the stable economic situation and the type of facilities in the structure. He pointed out that where these are lacking; there is a tendency for voids in certain locations.

Nwankwo said, “If a location is primed for commercial use, it doesn’t really matter how old the property is, people will rent and convert it to whatever use (s) they want. Some locations are designated for commercial use, while any other uses will attract sanctions for constituting a nuisance. Certain offices have certain features deemed to be convenient and suitable for people, the finishing also attracts people and determines how high the rent will be and the level of uptake.”