Lagos – Report from analysts have indicated that ahead of the 2019 elections, pre-election uncertainties with its attendant inconsistencies in government policies are threatening foreign investors’ confidence in the real estate sector.
Their observation showed that as predicted and hoped for in the first quarter (Q1) of 2018, the economy regained some lost momentum in the second quarter of 2018, with the purchasing manager’s index (PMI) hitting a new record high in May, as oil prices remained firm in April and May and inflation dropped steadily to its lowest rate since Q1 2016 to 11.23 per cent in June.
For instance, they disclosed that while there has been a marginal increase in transaction rates in the Lagos office market, many transactions still fail to conclude, primarily due to high initial cost. The increase, according to analysts is as a result of slow increase in the demands for prime office space with a lot of inquiries being received for vacant spaces, thus providing some welcome relief to a sector that has struggled with high vacancy rates and an oversupply of office spaces in the last four years.
There were said to be new entrants into the market with some notable business relocations by some multi-nationals to prime office spaces in Ikoyi and Victoria Island (some top indigenous companies were also said to move to their newly constructed office buildings.
“These, coupled with notable reduction in energy costs experienced by tenants in the LEED certified Heritage Place and increased interest in co-working space will no doubt be welcome news to a beleaguered sector. Asking rents for annual prime office spaces in Ikoyi and Victoria Island have largely remained stable at $700 and $600 respectively.
“However, as we continue to hear of rental concessions still being given, note various building projects such as Desiderata, Kingsway Towers, Madina, Cornerstone and Grey Stone Towers, nearing completion, and have noted the refurbishment of a couple of Grade B buildings, (the iconic IMB Plaza to name just one), it is expected that the office sector will receive over 50,000m2 of new office space in 2018 alone, further adding downward pressure to asking rental prices in the prime sub-markets of Ikoyi and Victoria Island.”
According to the report, the wider retail industry is rebounding and vacancy rates in many malls improving from lows to 30-60 per cent to 60 to 80 per cent. The asking rentals for the big malls which are still largely US$ denominated, have remained stable through Q2 2018 with many tenants adjusting to the current state of the economy and keeping up better with payments. This, they said, may not be unconnected with rental discounts and concessions granted by landlords such as fixed exchange rates for US$ denominated rents.
For smaller centres, there has been an increase in new entrants in Q2 2018, especially along the Lekki corridor which has helped to boost the retail industry, with a lot of retailers expanding to take up spaces in newly built and well located, smaller neighbourhood retail centres.
“Another (somewhat disturbing), trend we noted is the conversion of residential buildings on major streets to small shopping centres catering largely to small retailers serving to completely change the look and feel of hitherto residential neighbourhood; places like Surulere and Ikeja come to mind.
“In the short to medium term, we expect that the larger malls will continue to strive to differentiate themselves from their smaller neighbours by seeking to create a more memorable shopping and entertainment experience for customers.”
Other observations made by the analysts include stagnation in the industrial real estate sector, as rentals have remained largely stable in this sector; as well as an increased in demands for short-let apartments, in spite of the challenging economic environment.