There is still no respite for property owners in Nigeria. The sluggish economic growth for the last few months does not bode well for rental market.
The West African largest economy, slipped into recession, with the latest growth figures showing the economy contracted 2.06% between April and June.
The country has been hammered after a plunge in oil revenues, which make up 70% of national income, eroded public finances and currency reserves needed to fund imports.
Perhaps the two most important risks facing Nigeria’s property market sector, this year are an inflationary environment, forex shortages and currency depreciation, said Ortneil Kutama, Africa Property News Media Director.
Nigeria has been trying for months to borrow abroad to fund a record budget to get the economy back on track.
The country had agreed on several reforms, such as increasing its value-added and corporation taxes to offset a loss of oil revenues, he said, adding that the tax-to-GDP ratio was 4% -5 %, less than other countries in the region at around 15 %.
Nigeria abandoned its currency peg in June hoping to attract more inflows. But with hard currency curbs still in place, few foreign investors are willing to put their money to work there, and those who need hard currency have to pay a 40 % premium on the black market.
“There is evidence that tables have turned, and the rental market has decidedly in the tenant’s favour,” says Kutama.
Retail landlords have been offering rental concessions like rent free periods, fit out allowances and pegged exchange rates in order to retain tenants, according to Bolaji Edu, Broll Nigeria CEO.
“Local developers are taking more flexible approaches such as accepting naira based rentals as opposed to dollar,” said Edu.
He points out that local retail brands are starting to take-up space at shopping centres outside prime locations in Lagos. These retailers require smaller spaces and often struggle to pay the high rents being charged in malls located within prime nodes.
Despite economic challenges, a total of 19,000m2 of retail space was added to the core and secondary markets during the second quarter with the opening of centres including Onitsha Mall and Maryland Mall.
Other investors continue to see opportunities in the Nigerian retail sector with South African retailer Pick n Pay announcing their entry into the market through a joint venture with Lagos-based AG Leventis, an established local retailer.
Although risks are still abundant with barriers to entry remaining high, Edu says it is fair to say that Nigeria still has specific political and economic risks and outside of Lagos it is difficult to develop without the support of the State Government.
The economy needs to gain momentum in order to help a struggling retailers and return the sector to its former glory days, concluded Kutama.