Despite the rapid growth of ‘Grade A’ office developments in highbrow locations such as Lagos, Abuja, Port-Harcourt and other cities, investors are increasingly seeking ‘off-takers’ in their property developments.
Research show that ‘off-taking’ is becoming the norm where the demand for business space is hottest and it accounted for over 20per cent or a greater proportion of the office demand market in some countries.
The concept also provides a wider set of possibilities for tenants willing to forego immediate occupancy in return for buildings that tick the right boxes in terms of location and finishing. With the global economic downturn and limited access to finance, developers and investors in office projects now require tenants to sign-up for spaces before supports are rendered by project financing institutions.Consequently, developers are now willing to offer competitive rent deals to off-takers to ensure that their projects get funded and completed.
For instance, ongoing construction of Aviation Plaza, Lagos and other projects in Victoria Island, Ikoyi and Oniru demonstrate how strategic location drives the scheme as would be tenants have already bought into strategically located properties before their completion.
The key to attracting the right tenant is targeting and buying a desirable piece of land in area with obvious need for a service. Having a tenant in place before building is completed makes investment much more valuable as an asset and reduces void.
Expounding on the concept, president of the Nigerian Institute of Building (NIOB), Kenneth Nduka stated that most times, when a developer finishes a building having spent huge capital, to get tenants that could afford the rent for the space might be very difficult.He stressed that tenants may not be able to pay for the cost of rent given the actual fund expended or the quality of finishing put into it hence, developers use the off-takers to discuss with their banks to agree on payment terms of loan and the interest rate.He said such initiative helps in advance financing of project because the assurance is there that the developer will rent it out after completion.
“Some developers engage customers on what they intend to build, allow them to voice their expectations, tastes and what they want in terms of designs which are subsequently incorporated into building. As they are building, the developer is sure that once they finish it, somebody will take the space and taking it off, means the money invested would be paid off.
The Chairman, Real Estate Consulting, a division of the Nigerian Institution of Estate Surveyors and Valuers, Niyi Fudoju said despite the advantage of the model in reducing void before property completion, a lot of cultural issues among some developers still prevail. He noted that some developers would rather want to finish building before bringing in tenants whereas, properties that are owned by forward-looking businessmen are opened to all forms of discussions because they are in the business to make money.
“Another advantage is that at the construction stage, whatever the developer can accommodate to further cater for the needs of the prospective tenants are put in place.The economic of a lot of Nigerians is faulty, they are not thinking of such model. They would rather want to complete a building before bringing in tenants. They are not thinking of time value of money. You see a property that is vacant for three years before owners is able to complete it and get tenant. It’s about having the understanding of the economies of property and time value of money”.
“If a property to be rented is vacant for three months and the owner rented it eventually, for instance at the rate of N100, 000 per sqm, what he is actually renting at the time of letting it out is at a N75, 000per sqm because he has lost three months and that is where the actual time value of money comes in”, he said.
Former President, Association of Consulting Architects of Nigeria (ACAN), Kitoyi Ibare-Akinsan said for people buying office spaces in the commercial segment of the market, the major attraction is the cheaper price aside the preference for the location of the property.
“If the economies of the place is good in such a way that you will find the upper-class, middle class patronising the place. The choice of the place will high by off-takers”. According to him, with building architecture becoming more of a fashion, people would automatically key into development that is very attractive virtually.
“The new trend in the world now is that your building must really stand out. Sometimes, the entire design of a property may not be too encouraging but the finishing must be rock-solid and well clothed as well as be aesthetically progressive”, he said.
As available land spaces for strategic commercial property development continues dwindle following increasing population in cities, investors are relying on ëoff-takeí model, which allows end-users to choose suitable sites design for businesses. The scheme also allowed for reduction of void before projects are completed.