Victoria Island leads rent decline in Lagos office market, slips 13% to $750/sqm

Victoria Island, the sizzling central business district (CBD) in Lagos State, is leading decline in prime office rent that the Lagos property market has seen from the first up to the present quarter of this year, the latest report on Nigerian real estate market conducted by Cluttons Nigeria has revealed.

The report, which also shows that rent in this segment of the market slipped by 13 percent to $750 per square metres, down from $1,000 by the last quarter of 2014, attributes the decline to high stock levels, adding that the impact of the economic uncertainty has also played a central role in the reduction in office space requirements.

Within the same period, the oil sector, in particular, which is arguably the dominant occupier group in the market, continued to consolidate space and reduce headcount, in line with what has been noted in other global oil centres, particularly those in the Gulf.

“Outlook for office rents is deteriorating and, looking specifically at the office space delivered during the first nine months of 2015, about 11,350 square metres have been added to Lagos’ prime office stock and we expect a further 34,805 square metres to be completed before the end of the year,” Faisal Durrani, head of research at Cluttons Nigeria, said.

Durrani pointed out that the substantial uplift in available space would be driven by the completion of Temple Tower, which promises 15,000 square metres, and Heritage Place, 15,600 square metres, both in Ikoyi, and Nest Oil Tower, 9,904 square metres on Victoria Island.

Ojame Ogini, an estate manager/consultant, said the decline could also be attributed to the quantum of renewals the market had seen this year, stressing, “there has been many renewals which is one indicator of how bad the economy is.

“When there are a lot of renewals, you know that people are maintaining the status quo. It shows there isn’t movement from the old to new homes or offices. The kind of movement you see these days is downwards. For instance, a tenant moved recently from an apartment where he was paying $850 per square metre to another where he is paying $100 per square metre. This is the only kind of movement people are making in the market at the moment.”

So many companies, he said, were still waiting to see where the government and the economy were going, saying, “some companies are waiting until 2016 before they take a leap. Presently, some foreign firms are operating virtual offices with just four people as against up to 50 people they had planned to deploy to Nigeria. Our expectation, however, is that by the time the new ministers settle in, we will start to see a turnaround.”

The report revealed further that Ikoyi was the next weakest performing market with rents dipping by 3.3 percent to $880 per square metre over the same period, noting that, aside from the oil sector, the financial and telecommunications sectors had led the demand for prime office space this year.

“With the strengthening supply pipeline across Ikoyi and Victoria Island, there will inevitably be further downward pressure on rents; so, clearly the office market in these submarkets is transitioning into a tenant’s market, marking a significant change,” Durani said, adding, “unsurprisingly, landlords are increasingly becoming more flexible with payment terms, lease lengths and rent-free periods.”