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2016 Economic Real Estate outlook in Nigeria

Renowned accounting and auditing firm, Pricewater-houseCoopers, is usually not known for getting its economic predictions wrong, though with slight variations in some instances usually caused by unforeseen fluctuations in micro and macro economic policies.

And so, when the firm made its report public that the country’s real estate industry would be valued at $13.65 billion this year, compared to the $9.16bn in 2014, accounting for 7.6 per cent of the country’s Gross Domestic Product, (GDP), it obviously sent  investors and realtors leaping for joy.

Now, in spite of the sharp downturn in the economy, especially with the naira’s free fall against international currencies, including the fast declining international crude oil price, stakeholders and experts in the real estate industry are still of the opinion that the sector will remain buoyant and full of activities this year.

But there is a caveat to this: realtors and investors have to be very discerning in their choice, or areas of investment because the sector will respond to both negative and positive economic indices.

Director, Real Estate Advisory, North Court Real Estate, Tayo Odunsi, agreed that the outlook for the real estate market this year will be largely dependent on the overall performance of the economy as the demand, supply and price of space is contingent on the well-being of occupiers, developers and investors.

Similarly, the Senior Manager, Real Estate Finance, Stanbic IBTC, Mr. Tola Akinhanmi, at a real estate conference, brought to the fore the need to take purposeful decision in real estate investment this year. For instance, he said there has been growing interest and focus on investment grade assets within the retail and office segments of the sector, in spite of an increased government interventions and support for the housing sector, such as the World Bank-led housing initiatives, establishment of the Nigerian Mortgage Refinancing Company (NMRC) and relative mortgage accessibility through pension reforms.

A report by North Court Real Estate, titled: Nigeria real estate market outlook 2016, further corroborates Akinhanmi’s submission. According to the report, the office development segment will experience massive boom, with over 150, 000 square metres of lettable space currently being developed for delivery over the next six months to two years. Of this figure, Lagos, the report says, remains in the front runner in this development, accounting for over 25,000 sqm to be delivered. And while Eko Atlantic City gradually takes shape, Ikoyi area would be the prime office destination; Abuja and other second tier cities will follow.

Investigations by The Nation revealed that high grade office spaces expected to be completed and drive this projection include but not limited to The Wings, a 27, 000m2-luxury office space being developed by RMB Westport and Oando Plc; Lake Point Towers; Madina Tower; and the 26,000m2 World Trade Centre (WTC) in Abuja. Others are the African Capital Alliance’s 6,670m2 “Alliance Place” in Lagos, being developed at a cost of N165 million, and the 15, 734m2 Heritage Place being developed by Actis.

“The development pipeline has never been so robust; the office development pipeline is very rich. Never has the nation enjoyed such influx of investment office space available for take-up by third parties as against owner-occupation, which was the norm in the past. The invasion may drive prices down moderately; we also postulate that occupiers may surrender leases in older buildings in preference for new builds, which may be willing to offer competitive prices,” the report said. This postulations may not be incorrect given that some developments, such as the Civic Towers and Landmark Tower, delivered in 2015, though had fairly rapid occupation, they nonetheless where rented at rates less than originally desired due to the economic crunch.

But Akinhanmi explained that in spite of the economic downturn, there was still a strong market in Nigeria’s real estate. This, he observed, accounted for the sector’s emergence as the sixth largest in the country, accounting for 8.4 per cent of the total Gross Domestic Product in 2014, and further growing by 18.78 per cent in the second quarter of 2015.

“The real estate sector has in the past five to seven years witnessed increased foreign and domestic investment; entry of foreign developers, investors and service firms; increased joint venture arrangements between local sponsors and financial as well as strategic partners; and development expansion into secondary places, such as Delta, Owerri, Abeokuta, Enugu, Ibadan and Kano, among others,” he said.

Yet, other stakeholders are of the opinion that the residential sub-sector will always have its own demand requiring that the supply gap needs to be covered. Boye Ajayi, a  consultant, explained that in spite of the economic situation, this sector would still be a high flyer because shelter ranks highly in man’s hierarchy of needs.

Therefore, Ajayi argues, man’s first priority is to get shelter over his head. He, however, said the sector may not experience high brow residential apartments making waves, but there will still be activities in the sector.

Indeed, experts said going by the events in the beginning of the year, tougher times loom, yet opportunities for success the subsector still abound. They, therefore, advise that smart real estate ideas, including innovation in designs, local content for production, and construction approach; creative funding; and disciplined focus, should be paramount to any investor in the sub sector this year.

Furthermore, with a seemingly gloomy future for the economy, Ajayi urged that engaging in any development requires more than ever before, proper analysis, adding that Nigerians and investors  seek experts’ opinion before committing resources to any investment this year.

Source: The Nation

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