Prime office asking rents still trending downwards in major markets

In spite of the slight improvement in the macro-economic environment, averaging asking rents for A-Grade office space in the major markets, particularly Ikoyi and Victoria Island in Lagos,  are still on down ward trend. These locations account for over  80 percent of commercial official development in Nigeria.

In Ikoyi, asking rents for this class of assets are averaging US$600 to US$850 per square metre per annum,  representing  2 percent lower than Q2 2016 rents. Achievable rents in this location are 8 percent to 15 percent below asking rents.

In Victoria Island, average asking rents follow Ikoyi pattern , easing by 6 percent to US$780 per square metre per annum in Q1 2017. Achievable rents here are 10 percent to 20 percent below asking rents.

According to a survey of active players in the real estate industry conducted by Ubosi Eleh + Co, a firm of estate surveyors and valuers,  over the next 12 to 24 months, approximately 98,960 square metres  of office space are expected to come into the market with 63,640 square metres of them intended to have been added to the market by  the last quarter of  2016.

A report on Real Estate Outlook for 2017 by the company notes that the significant slowdown in activity and high vacancy rates recorded in previous quarters, pushed estate agents and property owners to extend even more concessions to prospective tenants, flexible payment plans and other incentives such as fit-out allowances, which are attractive to tenants deterred by the large capital expenditure needed to furnish space.

Chudi Ubosi, an estate surveyor and valuer, confirmed to BusinessDay that  “in some instances, landlords are also willing to put in soft furnishing for the space on offer”.  He added that this cost is amortized over the lease term and has been welcomed by tenants who benefit primarily from the considerable reduction in their upfront costs.

Over time, Ikoyi and Victoria Island have been the most active markets for institutional Class A office space supply in Lagos. Currently, there are new developments leasing or due to be delivered this year and these include The Wings Towers (27,500 sqm), Nestoil Tower (7,500 sqm), Madina Tower (8,300 sqm) and Civic Centre Towers (8,096 sqm) in Victoria Island.

Others are the  Heritage Place (15,631 sqm), Alliance Place (6,670 sqm), Kingsway Tower (12,000 sqm), Temple Tower (14,000 sqm), BAT’s Rising Sun (10,000 sqm) and Lake Point Towers (13,400 sqm) in Ikoyi.

The over-supply  in these locations, reflected in falling rents, is likely to put a check on further commercial development in the short term. This is not the least because of the challenges of raising finance in a market where pre-leases are hard to come by.  It is also difficult to predict real estate cycles for projects, as by their very nature, they take three to five years to develop. In addition, the economy is also difficult to predict within such a time frame.

Following the devaluation of the Naira by the Central Bank of Nigeria (CBN), the exchange rate of the local currency against the US Dollar has been unstable making planning difficult. The implication of this, for a tenant who leased an apartment at a certain rate two years ago, is that, at the point of renewal, the rent would possibly have doubled in Naira terms.

CHUKA UROKO