Demand for warehouse space, both for storage and manufacturing activities, has dropped sharply in Lagos area, and Cluttons projects these conditions may persist in the remaining part of the year, according to the Cluttons’ Spring 2016 Lagos Commercial Property Market Outlook.
According to the report, compiled 12 months to the end of March 2016, there has been an overall slowdown in activity in Lagos’ commercial real estate market, with rents either stagnating or declining across most segments of the sector, attributed to the weakness in the adverse global and domestic economic environment, which is in turn fueling challenging trading conditions.
The potent mix of weak domestic economic conditions, combined with macro issues such as the slowdown in China and the oil price plunge, have filtered through to the real estate sector, particularly as the policies introduced to protect the economy start to bite. In fact, across Lagos’ commercial markets, the impact has been stark.
For instance, the industrial market appears to have been the most significantly impacted by economic conditions as manufacturers have struggled to remain operational. However, as the industrial market has historically been plagued by a demand-supply imbalance, the drop in requirements has not yet forced rents down.
Overall, Apapa remains the most expensive submarket at $7.5 Per Square Foot (psf), followed closely by the Ilupeju submarket at $7 psf and then Ikeja (Oba Akran) at $6.5 psf. The most affordable submarket remains Abule Egba at $3.5 psf.
However, retail real estate remains attractive to foreign investors, as evidenced by the recent change in ownership of Ikeja City Mall from a joint venture between Actis, RMB Westport and Paragon Holdings to the South African REIT Hyprop and Attacq, a real estate fund.
“The growing popularity of this asset class in Lagos is reflective of the underlying supply-demand imbalance and investors’ longer term view on the market, despite the current challenges to growth. In fact, developers are already rushing new schemes to the market, particularly at the smaller end of the scale, with Lagos seeing an increased development pipeline of smaller centres of under 5,000 sqm, with Admiralty Way, Lekki and its immediate environs having among the largest number of these new developments within the wider Lagos State area.
“These smaller malls are quickly occupied by strong indigenous brands as annual rents are perceived to be more affordable and hover in the $250 per square metre (psm) to $376 psm bracket,” Erejuwa Gbadebo, CEO of Cluttons Nigeria said.
The report revealed that rents are stable with The Palms Lekki leading as the most expensive space at $900 psm. Anticipated additions to Lagos’ retail offerings later this year include Oasis Centre and Maryland Mall, both in Ikeja. Ikeja City Mall is the second most expensive retail mall in Lagos, commanding average lease rates of $795 psm, followed by Maryland Mall at $780 psm. At less than half the price of these malls are the most affordable retail locations in Lagos; Adeniran Ogunsanya Mall and Apapa Mall, where rents stand at around $360 psm.
The Head of Research and Partner at Cluttons, Faisal Durrani explained, “the deteriorating global economic conditions have also impacted Lagos’ commercial real estate market, with transaction levels dipping and vacancy rates rising across the board, which is putting rents under downward pressure and driving landlords to offering a range of lease incentives to entice demand, although this is still limited to a few landlords and is yet to become the market norm.”
He said: “In the short term, we expect retail rents to remain stable, particularly as tenants often sign leases with built-in escalation clauses. However, we anticipate a reduction in rents in the long run if the wider operating business environment does not improve, as retailers are expected to demand rent reductions should profits come under further pressure. In fact, we have already noted a number of instances of retailers exiting the Nigerian market temporarily.
“Still, there is a general shortage of formal retail space in Lagos and with the ongoing growth in the city’s population, the future for the sector remains bright. In the more immediate term, with restrictions on the use of debit and credit cards for overseas purchases, there is a likelihood that the current market conditions will paradoxically spawn luxury retail malls, designed to cater to those unable to shop abroad because of limiting fiscal policies. This is something we will be monitoring closely.”
Source: The Guardian