Policy uncertainty, soaring inflation as well as the notable dip in oil production due to pipeline vandalism in Niger-Delta region, which conspired to pose significant headwinds for the Nigeria economy, have also impacted demand for assets, leading to a 34 percent rise in vacancy rate in commercial real estate.
In the commercial office space, falling demand and increased supply of space have dropped rents significantly from $1,000 and above per square metre as of the last quarter of 2015 to $800-$850 per square metres, creating a situation that has given ownership advantage of the market to tenants.
“As at the third quarter of this, corporate occupiers continued to seek out deals to be had in the commercial office space which has increasingly turned into a tenant’s market,” a recent report on the real estate market by Broll Nigeria says. The report notes that the oversupply in office space and low tenant demand continued to put downward pressure on achievable rents, which has further widened the divergence between asking and achievable rents.
Opuda Sekibo, a researcher at Broll, notes in the report that although landlords maintained asking rents over the third quarter of the year, they are however willing to include attractive non-rent incentives, by way of fit out allowance and rent free periods as a means to drive up occupancy in their buildings.
Unlike before when oil and gas companies were the major market drivers, some of the key drivers of demand for Grade A office space in the market now have come from the multinational manufacturing as well as financial and business service sector most of whom are looking to relocate to better quality buildings in the core commercial districts.
It is expected that further rent drop will be seen as market expects additional 47,000sqm prime office space, which lends credence to the Bismarck Rewane’s prediction that vacancy factor index (VFIX) will increase to about 80 percent in 2017 from 74 percent in 2016.
In his recent economic review, Rewane pointed out that high interest rates would continue to lead to more properties ‘for sale’, adding that only properties that offered great value for money would sell while buyers bargaining power would gain momentum and force down rental prices.
Analysts say that given these prevalent market conditions, upward occupancy costs by way of increased service charge is likely to materialize by way of increased service charge. They of the view that with the service charge in most Grade A and B buildings expressed as a percentage of the payable rent, the downward pressure on asking rents is likely to lead landlords increase in service charge as property managers are to keep up the standards required to attract blue chip corporate tenants.
“With the addition of The Wings Towers (27,000sqm) to the existing Grade A stock, the pressure in the previous quarter will likely persist as the market remains exceedingly competitive for landlords”, the Broll report says.
Continuing, the report emphasises “achieved rents are expected to fall further as landlords of newly completed developments compete for the shallow pool of corporate tenants able to afford Grade A office spaces. Over the next 12 months, over 47,000 square metres of office space is expected to be delivered with the likes of Alliance Place (6,670m2) and Kingsway Towers (12,000m2 ) nearing completion”.
