Prime office market in Nigeria which was the toast of foreign equity and institutional investors and local corporate organisations during the ‘good’ old days of the country’s economy has, in recent time, witnessed bearish run as economic recession has deepened transaction drought in that market.
Of all the real estate sub-markets, the prime office segment has been, perhaps, the most impacted by the economic downturn as corporate users are, increasingly, less likely to take up new or more expensive space in a recession.
The situation is worsened further by the pricing of prime office rents in dollars at escalating exchange rates, and the seeming over-supply of new A-grade office developments that has left large organisations and blue chips with almost all the bargaining chips.
A report obtained from Northcourt Real Estate noted that recent completions that are not owner-occupied or built-on-order are joining the existing stock of empty office space which are now dotting the landscape of Ikoyi and Victoria Island in Lagos, Trans Amadi Layout and Olu Obasanjo Way in Port Harcourt and central business district (CBD) in Abuja.
“To avoid joining the stock of empty spaces, some developers have opted to offer significantly reduced rents to large space takers, while letting smaller spaces at figures closer to headline prices,” Tayo Odunsi, director at Real Estate Advisory at Northcourt said.
Port Harcourt in particular has experienced an enormous drought. The oil and gas sector, which underpins most economic and commercial activity in the region, has significantly weakened due to reduced oil prices; reduced production and increased insecurity.
Consequently, layoffs, shutdowns and, most recently, the instruction from the government agency that regulates joint ventures with private oil companies that all procurements and contract prices be reviewed downwards by at least 30 – 40 percent have meant reduced demand for office space or a downward rent review.
Hence with a large pile of existing stock and increasing ongoing projects, tenants appear to have an edge at negotiations, constantly placing negative pressure on rents as landlords clamour to secure occupiers for their large investments.
However, in Lagos, other regions like Lagos Island, Yaba and Ikeja have not felt such pressure, as there is limited prime space in these regions.
Similarly, in the retail submarket, there seems an over-supply as the first seven months of this year alone has seen the completion and delivery of many malls including Circle Mall, Maryland Mall, Onitsha Mall, Asaba Mall and Owerri Mall.
The Novare Lekki Mall joined the lot last month, increasing the existing space by 22,000 square metres lettable space. This however, a bit of good news as it shows that the retail space is finding a way around the foreign exchange and importation challenges it faced in 2015. One enabling factor for certain is the cooperation between developers/ mall owners and tenants. Rents have either been stayed or reduced to ensure malls remain occupied.
Also, favourable foreign exchange rate trade-offs have been agreed upon in the face of fluctuations and scarcity, but these aides were not sufficient enough to prevent some retailers from surrendering their leases, which is fairly easier to do in the retail sub-sector considering that rents are paid quarterly or even monthly.
CHUKA UROKO
