Commercial office space segment of the Nigerian real estate market is experiencing downtimes resulting from over-supply and other factors that have pushed up vacancy rate at high-end locations to as high as 54 percent in July, up from 48 percent in June 2015.
This is contrary to the singsong a couple of years ago that there was demand-supply imbalance in the Nigerian real estate market.
Besides the over-supply, this segment of the market has also been impacted negatively by macro-economic issues, including the plunge in oil price at the international market coupled with the lay-off of workers by international oil companies in the country.
The real estate market, more than any other sector of the economy, has taken a bashing from the inactivity in the economy in the last three months of the new government in the country. This in the opinion of Bismarck Rewane, CEO, Financial Derivatives Company Limited, investors in this sector are still waiting for government policy direction.
Rewane, whose views were contained in his monthly economic reviews for July, pointed out that the name and shame debt recovery strategy by the commercial banks forced huge selling of properties, adding that the renewed war against corruption and money laundering by the anti-graft agencies were pushing down property values.
Enormous investment has gone into commercial office space development in Nigerian cities and, according to Rewane, within this year alone, Civic Centre Towers, Nipost Tower, Temple Tower, and Nest Oil/Victoria Tower, will be off-loading a combined 57,596 square metres (sqm) of office space into the Ikoyi and Victoria Island markets.
Between 2016 and 2017, he said, the market would also be receiving the Alliance Place, Kingsway Tower, Eko Tower 11, The Wings Tower, Madina Tower and World Trade Centre, which would be bringing 22,034sqm, 6,670sqm, 15,000sqm, 27,000sqm, 8,300sqm and 20,000 spaces, respectively, to the market.
An investor, who did not want to be named, confirmed to BusinessDay that the market was receiving more than the demand, saying however that investors and developers were putting in place measures to stimulate demand and tenant-interest.
“What happens when the market does not live up to expectation is that there will be adjustments in all the things that drive the market and that will happen either this year or next when many of the pipeline projects will be completed,” the investor said.
Continuing, he said, “as supply comes and demand does not meet it, there will be adjustment; there will be a great deal of efforts at product differentiation within the same market; people are going to be a lot more conscious of the quality they put to the market – the energy efficiency and environmental friendliness; a lot of things will come into play to differentiate one product from another, including occupational cost.”
In the face of all these, massive supply gap exists at the low- to mid-income residential housing, which analysts estimate the value at $500 billion, blaming the gap on low purchasing power of people in this income class and also lack of credit facility from banks, which are loan-shy to residential real estate.
The story is however different at the upper-end residential market where, in Ikoyi, Rewane noted 22 percent vacancy rate increase in July, up from 18 percent in June, adding that in Lekki there was an increase from 51 percent in June to 55 percent in July, while Victoria Island witnessed 28 percent increase, up from 26 percent within the same period.
“Demand for residential properties in the high-end areas was affected by exchange rate volatility,” he said, saying there was, within the period under review, high vacancy factor in the flooded areas such as Parkview Estate, Ikoyi, Chevy View Estate, Chevron, Lekki Phase One, etc, all in Lagos.
Rewane was however optimistic that there would be a rebound of activities in this sector after the appointment of ministers by the Federal Government, saying that construction would continue once government released money.
“A lot of mixed use developments in the pipeline will continue; clarity in policy direction will bring back foreign investors,” he assured, hoping that surplus supply might cause rents to fall slightly.
