Growing economic confidence translates to demand for real estate – analysts
The growing confidence in the Nigerian investment market and the wider economy will ultimately translate into increased demand for goods and services, including real estate space, analysts say.
The analysts note there are already ‘green shoots’ in the macro-economic environment. They explain that factors such as the import and export foreign exchange (IEFX) window introduced in Q2 2017, increased oil prices and stronger production numbers are gradually translating into improved business and consumer confidence.
Though real estate market normally lags changes in an economic cycle, sentiment is already positive in the market. Nnenna Alintah, head, Occupier Services at Broll Nigeria, lists factors such as improved access and affordability of forex, and sustained downward trend in inflation rate as major drivers.
As a result of the above, consumer and business confidence is looking up, particularly in commercial real estate. “In the office sector, activity in the first few weeks of 2018 has overshadowed what we experienced in the corresponding period in 2017. Demand is on the rise, with interest from sectors such as oil and gas, finance, professional services and the technology services sector,” Alintah says.
It is anticipated that the ongoing recovery in the economy will positively inform investment decisions in the commercial office market. Edward Osammor, director at EMC Real Estate, notes that interest in commercial real estate is growing once more with the domestic and international equity investors, once again, considering the development of commercial property in the Lagos.
Already, the market has seen significant interest from foreign investors, especially those from European, South African and Middle East countries. Recently, International Finance Corporation’s (IFC’s) acquired 1,500 square metres office space within the African Capital Alliance’s (ACA’s) flagship Alliance Place office building in Ikoyi, Lagos.
“Yes, there has been increased demand which has remained consistent in the area of land purchase in developing areas especially within Lekki corridor and strong enquires for mainland assets in Gbagada, Ojodu areas. This has led to an upward swing of about 10 percent-15 percent in land prices,” affirms Damola Akindolire in a telephone interview.
He notes that the hospitality sector is also gaining grounds with more hotel investment interest, stressing that hotel apartments are coming on stream, especially with the recent opening of Golden Tulip in Oniru and Radisson Blu in Ikeja. “We will continue to see a strong run in this space with delivery of additional 1000 rooms in 2018”.
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But Alintah points out that the office market is still a tenants’ market and this trend is to persist until there is a significant reduction in the excess supply that currently characterizes the market. In the grade A office sector, vacancy levels are at 50 percent in Victoria Island and 75 percent in Ikoyi.
The retail market, according to her, took the hardest blow following the economic downturn. Purchasing power of
consumers declined significantly and as such there has been a shift in demand to more affordable brands. Retailers halted expansion plans and simultaneously consolidated operations to the best performing locations and malls in which they have presence.
She hopes that with increased purchasing power, consumers are expected to resume patronage, but not immediately. For retailers, downsizing and exits from existing malls is likely to stall in the medium term.
“However, we are not confident in any expedient expansion as retailers recover from the recession. We expect that developers who are keen to commence new projects will adapt their plans given the realities of oversupply, shallow tenant pool and slower leasing activity in the market,” she says.
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