‘Vacancy created by movements out of properties is a reflection of economy’

The good news about this year, from my own perspective, is that unlike last year when people expected miracles to happen and so did not believe that things were really bad, a lot of people are now adjusting.

For instance, rents on properties have come down to a level where we see people rent properties again. There is a property in Osborne Phase 1 that was rented out for N15 million per annum three years ago. Now, the landlord has collected N6.5 million per annum. This shows that people are now being more realistic on both the rental and sales side.

However, it is those on the sales side that are being heavily hit because, on the rental side, majority of the property owners are not owing banks. For those who have houses for rent, all that has reduced is their income, unlike the man who has borrowed from the bank with mounting interest rate. We are at a point now where people are sitting down with the banks to renegotiate their loan terms.

Of course, yes. Unlike last year when we had properties that were not inspected in two months, in the last three months, we have been getting calls on those properties.  In terms of rent which is location-based, demand has not dropped for Surulere properties. In both lower and middle level locations where people must live, both rent and demand have not dropped even by 1 percent. But in the luxury end market, there is clearly 30 percent more vacancy than the low end markets.

I don’t see anything taking off this year, though a lot of the empty buildings will be filled up because a lot of realistic lands are beginning to emerge. In some areas, rents have gone down as much as 60 percent. The dollarized rents are even worse because tenants still want to pay the old official exchange rate which is no longer realistic with the new rates.

These are people who don’t want money and so, would rather hold on to their property. They would not drop their rent. Some of them even feel insulted by tenants coming for a downward review of their rents. But this is not affecting the mid-level market where demand is still strong.

What some people are doing at the commercial space is to find a way to give allowances to the tenant. Where rent is $800 per square metre, the landlord may decide to give back, say 30 percent, of this to the tenant as fit out allowance. The rent remains $800 but the tenant pays effectively $500 per square metre. The advantage of this is that when the market returns, renegotiation starts from $800, not $500 the tenant has paid.

There are two banking halls in that facility. One has been taken. Negotiation is on with another bank on the second hall. Other activity spaces in the towers will, most likely, be run by members of the church.

Being a church, prospective buyers may not be slammed with heavy dollar rents. In similar developments, the average rent will be about $600 per square metre which is an average of N200,000 per square metre using the official exchange rate. But in this facility, we will be looking at an average rent of N150,000 per square metre. So, it is going to be a bit cheaper than its peers on the island. The aim is to quickly get it filled up so that the church can carry out its activities there as planned.

The vacancy created by people moving out of properties is a clear reflection of the state of the economy. But  people moving out properties are not dying, but are somewhere. Offices are shrinking. We had a client who was about to sign for a 2,000 square metres space in a new location, after one year they came back to us to ask us to rent out half of the 500-square metre space they have been operating from. This is because they have reduced their operation and that means a number some staff have gone.

Again, there is another company that moved out of a commercial property into a guest house. They are now using upstairs for offices and the downstairs for residential. By this action, they have cut the cost of office space. The market is obviously taking a hit from all these.

A lot of people have downgraded. If you look at apartments between Lekki Phase 1 and Chevron, they are occupied. This is because the  N3 million to N3.5 million property renters in Lekki Phase 1 have move down to this axis to pay N2 million rent. A company has just relocated from an apartment in Ikoyi where it was paying $70,000 per annum to a flat where it is paying just N6 million per annum. What they have done is to leave a more luxurious property to another that is cheaper.

Presently, in the housing market, what people are looking at, over and above facilities, is security. Once there is security with generator to give light and pump water, the house is good to go. By this, the definition of luxury flat has changed a bit.

We have this herd mentality where everybody just follows the guy in front. Before this lull happened, we were advising developers who cared to listen, especially since we bounced back from the 2007-2009 downturn, that there were too many luxury properties coming up on the island and they are always the worst hit whenever there is a glut. Many did not heed this advice.

Right now, properties in the middle market are not hit at all. If they cannot be sold, they can be rented. As for the high end, they cannot sale and they can’t rent. Research is still lacking in real estate. Many of the developers are not researching.  My advice for those still planning to do a development, is to slow down and wait till when the market is expected to pick up again.