Office space rent drops in Ikoyi, Victoria Island as supply soars

An increasing supply of prime grade office space in Ikoyi and Victoria Island has reduced commercial property developers’ asking rent in both markets, a report by Broll Property Services has revealed.

The periodic report shows that with the delivery of as many as 30,000 square metres of grade ‘A’ office space into these markets in the first quarter of this year, annual rents of new developments in the Ikoyi axis have dropped by 15 percent.

Precisely, annual rent of new developments in the Ikoyi initially pegged at $1,000 per square metre have been subtly reduced to a more realistic $800 per square metre for the short term, while the Victoria Island market have equally seen its rent stagnate at the latter figure since Q4 2014.

The report further stated that annual rent in other less pricey areas such as Lekki, Lagos Island and Ikeja have stagnated at $240, $187 and $180 respectively per square metre since Q4 2014.

The report points out that with supply expected to peak this quarter owing to the imminent delivery of another 40,000 square metres of prime grade office space into the market, property owners are  likely to push back on lease terms, rental rates and even introduce more tenant-friendly incentives in a bid to attract prospective tenants to their developments.

According to the report, the subdued activity and slowdown in the  asset market in the first quarter of the year coupled with the wider  office space options meant that tenants took a more sluggish and laid back approach in taking spaces off the market.

In response to this sluggish behaviour, increased competition and economic challenges, Broll said it observed that few landlords in Victoria Island and Ikoyi became more competitive by lowering their asking rental figures, adding that while the trend looks to continue even in Q2, rental activity will remain upbeat in buildings with competitive rents as demand will remain stable.

However despite this slowdown, the report noticed that the demand for top grade office space from the financial services sector remained consistent as firms in the industry continue to expand or relocate to better quality space.

Additional demand was also noted in the technology sector. The narrowing demand from the oil and gas sector continued and it is anticipated that firms within the industry will consolidate or remain conservative till oil prices find their long term equilibrium.

ODINAKA MBONU