50,000sqm office space set for delivery in Lagos
In spite of the devaluation of naira and its effects on many sectors of the economy, including real estate, about 50,000 square metres of office space are expected to be delivered in Lagos in the first quarter of this year.
According to a report by a real estate consultancy firm, Broll Nigeria, signed by its Chief Executive Officer, Mr. Bolaji Edu, ongoing construction projects will continue despite the many constraints in the economy.
The report read in part, “In the first half of 2015, we expect up to 50,000sqm of office space to be delivered. Throughout the year, the largest deliveries will be the Nest Oil Tower and Heritage Place. These buildings will each bring on 15,000sqm of sustainably built prime grade office space to Victoria Island and Ikoyi, respectively.
“Some market observers have speculated that many of the projects currently under construction in Lagos may be put on hold due to market conditions, but we expect all ongoing projects to continue construction except in extremely severe cases.”
The report noted that rent would remain stable in the next three to six months despite pressure from a strong development pipeline and weak economic environment.
It stated that the current supply of office accommodation was low but expected to increase with the addition of the estimated 50,000sqm, while demand would be stable, adding, however, that demand from certain sectors might be slow, while picking up in others.
According to the report, vacancies are anticipated to remain stable in most regions, with upward shift as pipeline developments hit the markets.
The report stated, “Within the real estate sector, 2014 Q4 performance remained relatively stable as institutional investors, with existing and prospective real estate investments, were undeterred by macro-economic challenges and political uncertainty.
“Prior to the current economic setback, many of these investors were keen on making an investment in Nigeria, with the rebasing and other strong economic fundamentals that emerged earlier in the year hastening their efforts to make an entry.
“Interest in collective investment schemes such as REITs has gained significant traction in recent periods. Poor performing asset classes are encouraging increased patronage from yield-seeking investors across board.”
According to the report, as the complexity, maturity and liquidity in the country’s real estate and capital market grow, larger players will be keen on making an entry into the fledgling REIT market.
It added that on the leasing side, similar to previous quarters, it was observed that a handful of international firms were interested in making an entry or growing their presence.
The Broll report added, “Yet, these corporates are remaining flexible, especially because of the strong development pipeline of prime grade office space expected in the next 12 months. Throughout 2014, oil and gas, and technology companies drove leasing transactions in prime office space. However, we observed a slowdown from these sectors and a slight increase in interest from the financial services companies.
“The effect of political candidates disposing their real estate assets at reduced prices has been noted as a market disruptor; however, we believe these transactions are unable to act as market drivers.”
It indicated that transactions in the final quarter of 2014 were largely subdued and remained stable, with less than 2,000sqm of prime grade space transacted.
“We are seeing that corporates are waiting to see the impact of the economy, falling oil prices and also for greater certainty on the completion of buildings before making commitments,” it added.
According to the report, the outlook for the real estate market this year is relatively mixed.
“While it takes longer for economic forces to affect real estate markets, we are observing that a few investors and landlords are being proactive by taking a strategic stance and reducing asking rentals on their existing and upcoming developments. This can also be attributed to a more competitive environment, given that corporate occupiers have more options than ever before with the increased supply of prime spaces being delivered to the market,” the report noted.
