Considering the pressure which an estimated 80,000 square metres of office space expected in the commercial office market will cause in 2016, unless there is strong economic activity and clarity in economic policies in the next six months, existing demand may not be able to sustain current rental levels, leading to a fall in rents, analysts say.
Following the rise in demand for international grade office space, a good number of projects aimed to satisfy this demand were initiated in the past few years and while some of them, including the 14-storey Civic Tower, Rose of Sharon Tower, NIPOST Tower, Kanti Tower, etc, were delivered in the outgoing year, a lot more, including The Wings, Alliance Towers, Heritage Place, Waves, etc, are still on-going and some are expected to be completed by 2016.
The analysts say competition will likely arise from an oversupply that the market may be witnessing in the coming year, which perhaps explains some investors already being more selective, taking factors like precise location, relative quality compared to existing and expected stock, tenant mix and average rents, into much more consideration.
“The year 2016 would really see many of the pipeline office space projects hit the market; competition for tenants will be there, but price adjustment might not be much”, Yemi Ogundare, an estate manager and partner at YemiDare & Associates, confirmed to BusinessDay.
Broll Property Services however, assures investors and downplays their fears, quoting the Director of the IMF African Department, as saying that the real estate market outlook in Nigeria still appears “robust”, especially because about 50 percent of its GDP is now generated from the services sector.
As at the first half of this year, about 6,720 square metres of office space were transacted on and, according to Bolaji Edun, Broll Nigeria’s CEO, 60 percent of this space was located in Ikeja, at the new Landmark House.
Edun added that P&G unveiled this location as its new administrative headquarters along with AC Nielsen, Robert Bosch and Spur, which also took up residence at the Landmark House, giving a boost to the Ikeja office market.
“Another significant transaction which accounted for the remaining 40 percent of transactions in the last quarter, was the unveiling of the Architects Place in Victoria Island, which already boasts a 50 percent occupancy rate, with one of its twin wings fully occupied”, Edun said.
Munachi Okoye, CEO of MCO Real Estate Limited, had noted that “the re-basing of Nigeria’s GDP, leading to its identification as the largest economy in Africa, has put the country on the map as the foremost investment destination for international capital seeking exposure to the African markets.
This, he said, has led to increased interest from international real estate developers seeking to gain entry into the market”.
Okoye, whose views were contained in a Q3 2015 report on the real estate market, noted that in the commercial segment of the market, institutional investors’ interest has remained very strong in the office space, retail and the hospitality sectors.
He added that prime rents in these sectors were as high as US$1,000 per square metre for commercial office, about US$900 per square metre for retail space, while room rates for prime hotels ranged from $300 to $500 per night.
CHUKA UROKO
