Due to a combination of factors including improvement in macro-economic environment and less risk aversion by investors in the economy, the prime office market has seen renewed demand for space even in Grade A office buildings where the market has been quite slow.
Available report on the office market transaction in the first quarter 2018 shows that the majority of enquiries recorded during the period, as strong as they were in a few cases, could not translate into concluded transactions.
This was reflected in the average time taken to close a transaction from first enquiry falling within 12 to 18 months being slightly higher in comparison to the 6 to 12-month period in pre-recession 2016.
As against 1000-1,500 square meters pre-recession demand, occupier demand for space has reduced to units between 200 square metres – 500 square meters, with most of the concluded transactions in the quarter falling within this range.
Nnenna Alintah, Head, Occupier Services at Broll Nigeria, points out that there were, however, a few exceptions, with strong enquiries in the oil and gas, FMCG, healthcare and other industries that were above 1,000 square metres.
“The oil and gas sector dominated demand and enquiries in the first quarter of 2018, however, there is strong demand from a diverse number of sectors such as power, marine logistics, finance, media and professional services”, she says
Many entrepreneurs and startups continue to channel their demand for space towards shared work spaces (co-working), a trend observed in the previous quarter and one that is expected to continue to expand with more service providers entering the market.
The office market has seen challenging conditions, but the level of activity in the market, although limited, has triggered some optimism amongst certain landlords. This has been evident in revised asking rents that some landlords are offering in the market.
In the first quarter of 2018, the median average asking rent for A-grade spaces in Ikoyi was US$750 per square metre per annum which has remained constant relative to Q4:2017. In the Victoria Island commercial node, the median average asking rent was US$650 per square meter per annum, a hike from the previous quarter’s median average of US$600 per square meter per annum.
Upward rent revisions also underpins optimism about the country’s economic prospects as well as renewed investor confidence which landlords expect to translate into increased activity in the commercial real estate market.
But with the current level of supply in the market, landlords remain price takers. This explains why many concluded transactions have recorded achieved rents that are a fraction below the initial asking rents.
The challenges are still evident in the prime locations with vacancy rates at prime grade buildings currently at 77 percent and 48 percent in Ikoyi and Victoria Island respectively.
“To remain competitive and drive up occupancy levels, many landlords are still offering concessions to prospective clients in the form of rent concessions, longer rent-free periods and flexible rental payments”, Alintah reveals.
