Despite the negative narratives on Nigerian real estate market, especially about the growing vacancy rates, negative growth, falling contribution to GDP, etc, it remains a major and irresistible investment asset class.
The market is estimated at N4.7 trillion with a yearly demand of 1 million housing units where only an estimated 100,000 units are supplied, meaning that opportunities are limitless.
The market fundamentals are clear and compelling. Demographics and consumer purchasing power are strong, but people-issue or population is stronger. Nigeria has a large number of people who are very aspirational. The median age here is estimated at 19 years while the average age is 27.
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This means that the country has about 75 million people between the age of 16 and 27, implying that the future is bright because all these people have to live, work, eat and play; they also have go to school and hospital somewhere and real estate envelopes all these and provision has to be made for them.
The implication of this is that the opportunities are there but these opportunities, according to experts, exist for investors who have the patience, and are ready to listen to, and dimension the market to understand what the market really wants and at what price.
There are particular segments of this market that investors can invest in and reap profitably this new year and these include the short-let apartments, co-working spaces, student housing and small-sized multi-family units apartments.
Short-let apartments in Lagos, Port Harcourt and Abuja have grown in popularity and according to Ayo Ibaru, a director at Northcourt Real Estate, “this growth is partly driven by the tepid return of expatriate technicians and the influence of Airbnb”, explaining that Nigeria became the fastest growing market in Africa for Airbnb, the platform that allows property owners earn income on their residential assets, growing by over 200 percent in the last five years.
To meet the growing demand in this segment of the market, landlords in prime locations are converting their assets to this use and are enjoying occupancy rates higher than standard residential building.
The vacancy factor in the prime residential market has been quite high in recent time. The rates in the standard residential apartments have hovered around their H1 2018 figures with Ikoyi recording 30 percent, Ikeja GRA, 26 percent, and Oniru, 33 percent among the highest.
Figures from a Northcourt Real Estate recent outlook report for 2019 shows that GRAs 1, 2 and 3 in Port Harcourt recorded vacancy rates of 6 percent, 11 percent and 20 percent respectively and continue to show potential principally for their security advantages when compared to most parts of the city.
Co-working space is coming up thick and investment opportunity here is huge. Demand which is driven mostly by millennials and start-up community is growing exponentially. This is despite Grade A office vacancy rates which remain high with existing 400,000 square metres stock of office space and over 40,000 square metres expected in the market in the new year.
“Millennial and the start-ups community continue to drive up the demand for co-working spaces with service providers seeking to convince traditional large-scale employers of the benefits of co-working just as corporates are in conversations geared towards putting up underutilised space for co-working use”, Ibaru confirmed.
Student housing is emerging investment frontier that guarantees investors high yields and stable cash-flow. “This investment asset gives about 22 percent returns which are more than double what commercial real estate gives, not to talk of residential real estate which gives 4-5 percent returns per annum. For this reason, we are encouraging other developers to come in”, Abaypmi Onasanya said.
Munachi Okoye, CEO, MCO Real Estate, affirms. He explained that demand for this asset class is chiefly driven by the widening gap between a growing student population and little or no accommodation supply, especially in public schools. “The ability to sign a long lease on land belonging to a higher institution or acquiring land adjoining a higher institution, building and charging a ready pool of student off-takers a market rent with 100 per cent occupancies leading to a stable cash-flow, sounds like a real estate developer’s dream”, he noted.
The increase in student population is a reflection of the national population growth which, as at October 31,2018, according to United Nations estimates, was 197.4 million-an equivalent of 2.5 percent of the total world population. The country’s annual growth rate is estimated at 2.6 percent.
Another profitable area for investors in 2019 is the small-size apartments including studio, one-bedroom and two-bedroom apartments. Market research shows that demand here is huge but supply is sparse.
“This is one area of housing where there is a huge gap which is not being addressed. Over 60 percent of people who are looking for houses to rent today are not looking for 3 or 4-bedroom apartments, but 1 and2-bedroom”, MKO Balogun, CEO, Global PFI, confirmed in an interview.
The demand in this sub-market is such that any available supply is taken up within one month of entering the market. Periwinkles Investment’s multti-units Oxygen Apartments comprising mainly 2-bedroom apartments sold out in two weeks of launching into the market.
African Capital Alliance is developing over 500-unit Blue Water Lagos in collaboration with Elalan Construction. The first phase of the development comprising 119 apartments is almost 40 percent sold out still at topping out stage.
These underscore the level of demand for this class of assets and, according to experts, the demand will continue to grow because “the economic recession which the country went through between 2016 and 2017 left hard lessons for families whose basic needs including housing and accommodation have to be redefined, with a lot of them favouring smaller housing units”.