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Recession Hits Luxury Office Buildings, Occupancy Rate Drops

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Office
  • Recession Hits Luxury Office Buildings, Occupancy Rate Drops

As a result of the current economic recession in the country, multinational and indigenous firms are cutting down on expenses, giving rise to a high number of vacant grade ‘A’ office buildings across the country.

Investigations by our correspondent showed that the occupancy rate of luxury office complexes was as low as 30 per cent.

Findings also showed that along Kingsway Road, Ikoyi, Lagos alone, there were more than five luxury office complexes, all with less than 50 per cent occupancy rate.

Same goes for grade ‘A’ office complexes in Victoria Island, Lagos and parts of Abuja.

Before now, the country’s reputation as the business hub of sub-Saharan Africa had fuelled a strong demand for grade ‘A’ office space with rents going as high as $800 (N253,600) to $1,000 (N317,000) per square metre in such buildings.

Prior to the country entering into recession, growth in the real estate sector had been boosted by rising per capita income, foreign direct investment, a fast growing middle class and rapid urbanisation.

Real estate investment firm, Broll Nigeria, had said that by the end of 2016, the country would have about 275,000 square metres of office space available following the huge demand.

But with the recession, corporate organisations have devised means of reducing overhead expenses, including rent.

The Chief Executive Officer, Broll Nigeria, Mr. Bolaji Edu, recently noted that “Nigeria has seen significant increases in the cost of maintaining and operating commercial buildings due to soaring inflation and foreign exchange challenges.”

He added that the high operating costs coupled with an oversupply of grade ‘A’ traditional office spaces and the slowdown that had gripped the economy in recent times had led to the glut of such office spaces currently.

Despite the glut, more than 50,000 square metres of office spaces are expected to be delivered this year.

Before the recession, rents for grade ‘A’ spaces in prime areas such as Victoria Island and Ikoyi in Lagos were rated among the world’s highest but according to findings, in recent times, prices have crashed by 50 per cent from about $100,000 per annum in some of the buildings to $50,000, yet the spaces remain unoccupied.

“Even with the drop in prices, there are no enquiries let alone leasing or outright purchase,” an estate surveyor and valuer, Chief Kola Akomolede, said.

“Not many businesses require such luxuries anymore. Banks, oil companies and telecommunications firms and other big spending companies were the main targeted tenants, but not anymore; the economy has taken a toll on many businesses,” he added.

Estate surveyor and valuer, Mr. Rogba Orimalade, said the situation should be blamed on lack of investors’ confidence in the economy.

He said, “Many multinationals currently lack the confidence to invest in the country and this has impacted negatively on office buildings because these buildings are developed with the projection that blue chip companies will take up spaces in them.

“Landlords have been forced to drop rents but even at that, they are still looking for tenants.”

For smaller and upcoming businesses, co-working and office sharing are gradually becoming the norm.

Co-working spaces, where in most cases tenants share a secretary or receptionist and a conference room on demand, currently cost between N15,000 and N180,000 per month depending on the location, or between N3,000 and N15,000 per square metre.

The Chief Executive Officer of 3invest Limited, Ms. Ruth Obih, said, “To mitigate the financial and operational difficulties of occupying a traditional office space in today’s gloomy economic climate, many businesses are turning to the opportunities and conveniences that serviced offices and co-working spaces provide.

“These include flexible payment terms, networking and collaborating, cost savings and lower operating costs, zero and limited overheads, while still attaining the same level of prestige and quality that you would achieve in a traditional office.”

According to Akomolede, real estate has been the most affected sector of the economy since the recession began and the lull is expected to continue until the economy recovers.

“I don’t think there will be much difference between 2016 and 2017. The year 2018 can be better; things may begin to take shape but only if we start refining our own crude oil,” he stated.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Economy

Trade Expert Calls For Increased Investments In AfCFTA to Boost The African Economy

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African Continental Free Trade Area (AfCFTA)- Investors King

There have been calls for more investments in the African Continental Free Trade Area (AfCFTA) agreement to boost the African economy.

At a recent virtual conference organised by the African Public Relations Association (APRA), an expert on trade and finance, Mr. Jesuseun Fatoyinbo, Head of Trade, Transactional Products and Services at Stanbic IBTC Holdings PLC, highlighted the benefits of increasing investments in the AfCFTA agreement during one of the sessions held as part of the three-day virtual conference.

Jesuseun stated that the AfCFTA agreement will allow African-owned enterprises to enter new markets, expand their customer base and create new commodities and services in the continent. The agreement was created in 2018, and a total of 54 African countries have signed up. Of these, 30 countries have ratified the agreement and 28 countries have deposited their instruments of ratification.

AfCFTA holds great promise for the African economy as it seeks to eliminate tariffs on intra-African trade, making it easier for businesses to trade within Africa and benefit from its emerging markets.

Speaking on the impact of trade on economic development, Jesuseun said: “The status of intra-regional trade within the European, North American and Asian economic corridors is currently estimated at 64 percent, 50 percent and 60 percent respectively.

“However, the status of intra-African trade currently stands at 17 percent, which is significantly lower than other continental regions. This limits business investments within the African continent while increasing trade dependence on foreign markets.” He emphasised the need for improvement in order to expand the African economy.

According to him, increased investments between African countries will trigger trade growth in Africa which will, in turn, promote industrialisation, economic development and subsequently lead to increased employment opportunities across the continent.

Jesuseun advised stakeholders on the need to observe other continental trade trends, as continental trade usually yields positive results. He said, “All sectors need to be involved in AfCFTA to promote industrial development and sustainable socio-economic growth in order to deepen the economic integration of Africa.”

The Stanbic IBTC Head of Trade cited some nations in East Africa which were insulated from economic recession as a result of intra-trade activities. He noted that “despite the severe issues caused by the COVID -19 pandemic in 2020, Tanzania and Ethiopia avoided economic recession, due to their ever-improving trade policies.”

Jesuseun advocated the replication of their strategies across other African nations, to boost Africa’s income and lift millions of Africans out of poverty. Speaking on Stanbic IBTC’s capabilities to boost trade, he said, “Stanbic IBTC is leveraging world-class digital technologies to make commercial imports and exports easier. The organisation is committed to making trade processes seamless and easier with technology.”

The trade expert stated that the pandemic unearthed the possibility of remote verification as against the prevalent practice of physical documentation. He cited examples of African trade’s past experiences, where many trade processes had experienced inefficacies and bottlenecks because of physical documentation.

Jesuseun concluded that trade processes need to be digitized, to enable seamless multilateral trade between African countries. He urged other stakeholders to create awareness about the usefulness of the AfCFTA agreement.

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Economy

Ogun Records N13.3B Internally Generated Revenue Monthly in Q1 of 2021

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Revenue - Investors King

Ogun State Government has recorded an average of N13.3billion monthly as Internally Generated Revenue (IGR) in the first quarter of 2021.

The government said it is also planning to raise its yearly Gross Domestic Product (GDP) rate from the current single digit by 25 percent.

The Commissioner for Finance, Dapo Okubadejo disclosed this to newsmen in Abeokuta ahead of the state’s investment summit tagged: ‘OgunIseya21: Becoming Africa’s Model Industrial and Logistics Hub’, slated for July 13th-14th, 2021.

Okubadejo who doubles as the State’s Chief Economic Adviser noted that the state’s IGR had experienced an upward movement after last year’s shortfall due to the Covid-19 pandemic and the attendant lockdown.

“We had a significant turnaround in the first quarter of this year. In fact, as of April, we have done almost N40bn in the Internally Generated Revenue. Our target this year is to exceed all the previous records we have set in IGR. That’s why we have put in place, all these transformation initiatives, friendly policies and also facilitate this investment summit to further showcase Ogun State as the preferred industrial destination,” he said.

The Finance Commissioner was supported in highlighting the investment potentials of the summit by his counterparts from the Ministries of Industry, Trade and Investment, Mrs. Kikelomo Longe; Works and Infrastructure, Ade Adesanya; Culture and Tourism, Toyin Taiwo; Budget and Planning, Olaolu Olabimtan and the Director-General, Public-Private Partnership, Dapo Oduwole.

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Unemployment To Push More Nigerians Into Poverty – NESG

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Nigerian Economic Summit Group- Investors King

On Friday, The Nigerian Economic Summit Group said that many more Nigerians are expected to fall into the poverty trap amid rising unemployment in the country.

The NESG, a private sector-led think-tank, noted in its economic report for the first quarter of 2021 that the country’s economic growth in the period under review was relatively weak.

It said, “Nigeria’s economic growth trajectory is better described as jobless and less inclusive even in the heydays of high growth regime in the 2000s.

“While the Nigerian economy recovered from the recession in Q4 of 2020, the unemployment rate spiked to its highest level ever at 33.3 percent in the same quarter.

“With the COVID-19 crisis heightening the rate of joblessness, many Nigerians are expected to fall into the poverty trap, going forward.”

The group noted that the World Bank estimated an increase in the number of poor Nigerians to 90 million in 2020 from 83 million in 2019.

“This corresponds to a rise in headcount poverty ratio to 44.1 percent in 2020 from 40.1 percent in 2019. The rising levels of unemployment and poverty are reflected in the persistent insecurity and social vices, with attendant huge economic costs,” it said.

According to the report, huge dependence on proceeds from crude oil, leaving other revenue sources unexplored, indicates that Nigeria is not set to rein in debt accumulation in the short to medium term.

The NESG noted that public debt stock continued to trend upwards, with a jump from N7.6tn ($48.7bn) in 2012 to N32.9tn ($86.8bn) in 2020.

It said public debts grew by 20 percent between 2019 and 2020, adding, “This is partly due to the need for emergency funds to combat the global pandemic and alleviate its adverse economic impacts on households and businesses.”

According to the group, Nigeria needs more than an economic rebound, and there is a need to improve growth inclusiveness.

It said, “Nigeria has struggled to achieve inclusive growth for many decades. Since recovery from the 2016 recession, the economy has been on a fragile growth path until it slipped into another recession in 2020 due to the COVID-19 pandemic.

“This suggests that the country needs to attain high and sustainable economic growth to become strong and resilient.

“The relationship between economic growth and unemployment rate in Nigeria suggests that economic growth has not led to a reduction in the unemployment rate – jobless growth.”

The NESG said to reverse this recurring trend, there was an urgent need for collaborative efforts between the government and relevant stakeholders towards addressing the constraints to value chain development in high-growth and employment-elastic sectors, including manufacturing, construction, trade, education, health and professional services, with ICT and renewable energy sectors as growth enablers.

It noted that despite the re-opening of the land borders that the Nigerian government shut since October 2019, inflation reached a four-year high of 18.1 percent in April 2021.

“While we expect improved agricultural production in coming months to partially ease inflationary pressures, this positive impact could be suppressed by recurring key structural bottlenecks including insecurity in the food-producing regions, electricity tariff hike, fuel price increase and hike in transport and logistic costs,” it added.

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