Transactions in the prime office market in the second quarter of this year reflected the challenges in the economy and market uncertainties, typified by capital and foreign exchange constraints, as well as the cautious stance taken by investors, fuelled the lull in these transactions which saw rents drop.
Demand was so low that landlords had no option but to drop their rents by 6 percents and more, in some locations. Average asking rents for A-grade offices in Ikoyi were on a downward trend, averaging US$850 per square metre per annum. Achievable rents were 8 percent to 15 percent below asking rents.
In Victoria Island (VI), rents eased by 6 percent to an average asking rent of US$780 per square metre per annum, while achievable rents were 10 percent to 20 percent below asking rents.
Besides the capital and foreign exchange constraints, analysts also attribute this development to the Q1:2016 GDP year-on-year growth figure which showed a decline of -0.36 percent, down from 2.11 percent in Q4:2015 and 3.96 percent in Q1: 2015.This, they say, is the lowest GDP growth in 25 years.
“This low growth figure can be largely attributed to the shrinking of the oil, power and manufacturing industries. The continued poor performance of the economy has lingering effects on the office market”, explains Kola Oseni, a research analyst at Broll Nigeria, in a recent report.
Bismarck Rewane, CEO, Financial Derivatives Company (FDC) Limited, agrees, and also attributes the negative decline in GDP to low consumer confidence and spending power, growing unemployment, rising inflation, now estimated at 16.5 percent, etc.
Oseni notes that though activity picked up marginally through corporate relocations, supply in the market continued to significantly outweigh demand, pointing out that this market reality saw landlords extend concessions by way of rent reduction, favourable lease terms and other tenant incentives in a bid to attract corporate occupiers and increase take-up rates.
Obi Nwogugu, Head, Real Estate Investment Unit of Africa Capital Alliance (ACA), affirmed in an interview in Lagos, that the prime office market was experiencing an oversupply and that landlords were doing their best to beat competition and attract tenants.
“We have to deal with the realities (competition) like everyone else and we think that our building is well positioned with good amenities. The floor-plates are very efficient. We have put in place very compelling green features which will make occupancy cost very competitive”, he assured.
Oseni recalls that the slowdown in activity and high vacancy rates recorded in previous quarters pushed landlords to extend even more concessions to tenants. “In addition to rent reductions, landlords have been more willing to provide other incentives such as fit-out allowances which are attractive to tenants deterred by the large capital expenditure needed to furnish space.
“In some instances, landlords have also been willing to furnish the space on offer on tenant’s behalf. Typically, this cost is amortised over the lease term and has been welcomed by tenants who benefit from the considerable reduction in their upfront costs. Some occupiers sought to take advantage of these opportunities by concluding relocations to better quality space in prime buildings”, he disclosed.
The investment market during this period was not encouraging. The market saw low transaction levels and given the prevailing economic conditions, the period for which assets have been on the market continued to increase with little acquisition interest expressed from potential investors.
Oseni reasons that if the current market conditions persist, a sustained period of downward pressure on rents in prime regions such as Ikoyi and VI is envisaged, adding that from a leasing perspective, the devaluation of the naira has seen an increase in effective rents which are typically pegged to the prevailing interbank rate. “In this regard, the pressure on landlords to extend more concessions in order to attract tenants is likely to remain over the short to medium term”, he predicts.
Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd
The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.
The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.
The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.
The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.
Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.
The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.
Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins
Oil Prices Recover from 4 Percent Decline as Joe Biden Wins
Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.
This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.
Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.
On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.
“Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.
“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.
“There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.
“Either you’re crimping energy demand or consumption behavior.”
Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020
Revenue of OPEC Members to Drop to 18 Year Low in 2020
The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.
EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.
“If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.
The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.
It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.
It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.
“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”
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