Cluttons Nigeria, a real estate services provider, says that for a combination of factors there may be a further drop in prime office rent, as the market will be expecting about 100,000 square metres of new prime office space in the next three years.
In its ‘Commercial Real Estate Market Outlook’ launched recently, the company says that its headline prime office supply forecasts for Victoria Island and Ikoyi remain relatively unchanged at about 65,000 square metres in 2016, 12,000 square metres in 2017 and a further 23,000 square metres in 2018, adding however, that there continues to be a trickle of space being returned to the market, particularly by oil and gas occupiers.
“In prime submarkets such as Victoria Island, we anticipate a light fall in prevailing rents from USD 750 per square metre to USD 700 per square metre by the end of 2016 and a decrease from USD 850 per square metre to USD 750 per square metre in Ikoyi”, says Erejuwa Gbadebo, the company’s CEO.
Gbadebo explains that this will, in large part, be fuelled by the completion of some 67,000 per square metre of new office space, spread across schemes such as The Wings, Lakepoint Towers, Madina Tower, Alliance Place and Kingsway Tower, all of which are due for completion within the next 12 to 18 months.
Because of this apparent over-supply, expectation is that prime office space in Ikoyi and Victoria Island may face some competition for tenants as there are indications of increased demand for newly renovated or refurbished buildings as opposed to new builds.
“The former tend to have the perceived potential for even more modern facilities and features than recently completed new builds, often with comparable annual rents in the range of USD 450 per square metres to USD550 per square metres”, the CEO notes.
She says that, for more secondary office locations, such as Yaba and Apapa, they anticipate that rents will remain stable, pointing out however, that due to an increase in interest and low supply in Ikeja, they expect a slight increase in rents in this submarket stabilizing at USD 150 per square metre to USD 175 per square metre for buildings with new or upgraded facilities.
Nigerian economy is in near-recession and Cluttons notes that in the past 12 months, growth in the economy has been curtailed through a combination of different monetary, fiscal, and political policies which have hindered overall business activity, job creation rates and GDP performance.
The company observes that the slower pace of economic expansion is having an impact on the number of new businesses entering the market, which will further shrink the pool of active occupiers, pointing out however, that there are opportunities for the landlords of these prime office space to position themselves favourably for when the market does recover.
“Occupiers continue to place high value on good building management and well maintained facilities, which are areas that landlords may consider as alternatives to reducing rents in order to entice demand”, Gbadebo says.
She lists incentives such as free fit out periods and rent free periods as those likely to attract the attention of occupiers moving within the market, looking for the ‘best deals’, adding, “but again, the current downturn in the wider economy suggests that such incentives are likely to prove to be a case of ‘too little, too late’; we previously expected to see a rise in the number of landlords offering flexible payment plans and while this is a growing trend, it is yet to become the market norm”.
CHUKA UROKO
