Recession Hits Luxury Office Buildings, Occupancy Rate Drops

• 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.