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Recession Hits Luxury Office Buildings, Occupancy Rate Drops

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  • 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

World Bank Calls on Nigeria to Impose Special Taxes on Alcohol and Tobacco

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The World Bank Group has made a call to the Federal Government of Nigeria, urging the government to impose special taxes on alcohol, cigarettes and beverages that are highly sweetened in order to improve primary healthcare conditions in the country.

Shubham Chaudhuri, who is the Country Director for Nigeria in the World Bank Group, said that an improvement in healthcare in Nigeria will come by taxing the things that are “killing us.” He said that the economic rationale for the action is quite strong if lives are to be saved and a healthier Nigeria achieved.

Chaudhuri made the call on Friday, at a special National Council on Health meeting which was organized by the Federal Ministry of Health in Abuja. Chaudhuri stated that placing special taxes on tobacco, sweetened beverages and alcohol would reduce the health risks which come with their consumption and expand the fiscal space for universal health coverage after COVID 19.

The country director also said that investing in stronger health systems for all would make significant contributions to the fight against inequality and the rising poverty situation in the country. He went on to add that increasing health tax would provide an extra advantage of reducing healthcare cost in the future, by hindering the growth of the diseases which are caused by tobacco, alcohol and sugar-sweetened beverages.

The representative of the WHO in Nigeria, Dr Walter Mulombo said that he could confirm the large health needs of Nigerians, as well as the efforts being made to meet those needs. He said this was based on the fact that he had been to over half of Nigeria’s states in less than two years of being in the country.

Mulombo then noted that although the coronavirus exposed weaknesses in the global economy (not excluding health), it could be considered as a unique opportunity for a thorough examination of existing resources and mechanisms to prepare for a more resilient future.

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Economy

Nigeria’s VAT Revenue Falls to N500 Billion in Q3 2021, Manufacturing Sector in the Lead

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Value added tax - Investors King

In the third quarter of 2021, Nigeria generated a total sum of N500.49 billion as value-added tax which represents a 2.3% decline when compared to the N512.25 billion recorded in the second quarter of the year.

This is as seen in the VAT report which was recently released by the National Bureau of Statistics (NBS). The report revealed that the manufacturing sector was in the lead as it remitted a total of N91.2 billion, representing about 30% of the total local non-import value added taxes in that period.

In spite of the quarter-on-quarter decline of VAT collections in the reviewed period, it grew by a further 17.8% when compared to N424.7 billion generated in the same period of the previous year. The report also shows that an amount of N1.5 trillion has been generated from value added taxes from January 2021 to September 2021.

That is 40.2% higher than the N1.08 trillion recorded in the same period of 2020, and 72.3% higher than what was recorded in the same period of 2019.

To break it down, the Value Added Tax collected in the first, second and third quarter of 2021 was recorded at N496.39 billion, N512.25 billion and N500.49 billion respectively. It is higher than the corresponding figures of 2020, which sat at N324.58 billion, N327.20 billion and N424.71 billion for the first, second and third quarters respectively.

In the third quarter of 2021, the Manufacturing activity accounted for the largest share of total revenue collected across sectors, with a huge 30.87% (N91.2 billion) coming from that sector. The Information & Communication sector came in second with 20.05% (N53.9 billion) contributed, while the Mining & Quarrying sector came in third with 9.62% (N28.4 billion).

Nigeria has continued to ramp up its efforts to increase revenue from non-oil sectors by increasing its tax collection rates, which has recorded largely significant growth since the federal government increased the VAT rate from 5% to 7.5% in the 2019 Finance Act, which was signed and made effective in 2020.

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Nigeria’s Economy to Close 2021 at 2.5% Growth Rate

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Trade - Investors King

The Lagos Chamber of Commerce and Industry (LCCI) has predicted that the Nigerian economy will close its growth rate for the year at 2.5%.

This was said by the President of the LCCI, Toki Mabogunje at the 133rd Annual General Meeting (AGM) of the chamber in Lagos on Thursday, as reported by the News Agency of Nigeria.

The LCCI leader advised that Nigeria’s monetary and fiscal aspects of the economy should encourage policies that enhance growth and build confidence which would invigorate private capital flows to the economy to achieve the growth. She also encouraged a medium-term recovery plan which is anchored on local productivity, attracting private investment, developing physical and soft infrastructure, and ease of business.

Mabogunje disclosed that Nigeria’s inflation would be maintained at its double digit level within the short to medium term, due to food supply shocks, foreign exchange illiquidity, higher energy cost, social unrest in the Northern region, possible removal of fuel subsidy, and insecurity. She stated that these structural factors will keep on mounting pressure on domestic consumer prices.

She also added that in spite of the non-oil economy’s growth by 5.4%, insecurity problems in some areas of the country may lead to shrinking in production and a disruption of the supply chain. She states that the important drivers of the non-oil sector growth were finance and insurance holding 23.2%, transport and storage 20.6%, trade carrying 11.9% and telecommunications 10.9%.

Others include manufacturing, construction, real estate and agriculture with 4.3%, 4.1%, 2.3% and 1.2% respectively throughout the year.

Speaking on the decision of the Central Bank of Nigeria’s Monetary Policy Committee’s decision to retain policy parameters, she mentioned that although the apex bank has been keen to extend credit to the real economy as a way of supporting it, it is a fact that the provision of credit recently has proven ineffective in improving output growth and stabilizing consumer prices.

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