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Nigeria’s Office Vacancy Rate Records Downward Trend

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  • Nigeria’s Office Vacancy Rate Records Downward Trend

Vacancy rate in A-grade office buildings across the country is going down, a new report on the real estate sub-sector says.

According to the report, Office Market Viewpoint in Q4 2018 by Broll Nigeria, vacancy rates in A-grade buildings in Ikoyi and Victoria Island, which have the highest rate, are currently down by 59 per cent and 54 per cent, respectively.

Broll stated that in 2018, landlords were increasingly sensitive to the existing oversupply of stock in the market and as such strategic leasing options had to be devised in order to attract tenants to their buildings.

It stated that these leasing options included attractive financial incentives such as extended rent-free periods as high as 12 months, longer beneficial occupation periods of six months and tenant fit out allowances of as high as $400 per square metre.

“Therefore, although asking rentals remained constant for much of 2018, net effective rents (base rents net of incentives) fluctuated below asking rents.

“The median average asking rent for A-grade offices in Ikoyi remained constant at $750 per square metre per annum in the fourth quarter. In the Victoria Island commercial node, the median average asking rent also remained fairly constant at $650 per square metre,” it added.

The report said 2018 saw a significant amount of activity relative to the previous year, especially as the economy emerged from recession and moved towards a path of recovery.

It added that the level of enquiries for office space also increased in the year under review with a more diverse profile of tenants in the tech, finance, oil and gas, FMCG, aviation and pharmaceutical industries.

“In the quarter under review, occupiers with longer term horizons continued to enhance their presence in the market with a number of signed leases being for more than 1,000m², which deviates from the smaller-sized office transactions in previous years. Approximately 14,500m² of A-grade space was taken-up in the Ikoyi market in Q4 of 2018 alone,” the report said.

“This move by investors occurred irrespective of the elections scheduled to take place in February 2019, highlighting less risk aversion to the aftermath of the elections relative to the previous electoral cycle of 2015,” it added.

According to the report, 2018 also witnessed a slight evolution of occupier requirements for lease acquisitions while an increased number of tenants have started looking at flexible, serviced office options, especially small scale new entrants seeking flexibility to either expand or exit the market as and when required.

It explained that co-working space requirements also rose and service operators were operating at full or near full capacity, adding that service providers, primarily local providers, operating in standalone converted residential properties or B- to C-grade office buildings.

Key factors to watch in 2019 and their potential impact on the office market, according to the report, include oil prices and the local currency, among others.

“The outlook for oil prices is one embedded in risk, and a possible devaluation in the local currency by year end could introduce transactionary risk impacts in the form of increased occupational costs within malls as well as higher product prices for retailers if goods are imported,” it added.

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 long experience in the global financial market.

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Experts Reacts to Shoprite Planned Exit From Nigeria

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Shoprite Planned Exit Triggers Experts Reaction

Experts have expressed their concerns over the decision of Shoprite Holding Limited to exit the Nigerian Market, Africa’s largest economy, at a period that unemployment is projected to hit 39.4 million.

On Monday, Africa’s largest retail company, Shoprite, announced it would commence a former process of exiting the Nigerian market or sell a major stake to willing investors that it claimed have started approaching its organisation for a possible partnership.

Experts, who spoke with our correspondents, said the decision would worsen Nigeria’s present economic position, especially with Osinbajo-led committee predicting that unemployment could hit 39.4  million in 2020.

Dr. Musa Yusuf, the Director-General, Lagos Chamber of Commerce and Industry,  said the Shoprite move would impact investors’ interest in Nigeria. Yusuf is likely making reference to a series of other factors hurting Nigeria’s economic outlook in recent months.

Barely a month ago, OPay, one of Nigeria’s promising startups started by a Chinese company, announced it will be shutting down some of its business units in Nigeria due to harsh business environment and other COVID-19 related issues. That was a company that raised about $270 million about a year ago.

The series of uncertainties hurting businesses amid unclear economic path have left many investors and businesses seeking exit plan. Even at that, several of the foreign-owned businesses and investments are stuck in the country with their owners unable to access foreign exchange to repatriate their funds.

A recent report showed the Central Bank of Nigeria has over $5 billion forex backlog, yet the nation’s external reserves is hovering around $36 billion since plunging from $45 billion in June 2019.

Prof. Uche Uwalaka, a professor of Capital Market at Nasarawa State University in Keffi, said, “The exit of Shoprite, or any other foreign business for that matter, ordinarily should be a cause for concern especially for a country like Nigeria that is in dire need of foreign direct investment.”

“The importance of Foreign Direct investment, especially in the area of job creation cannot be overemphasised.

Speaking on the matter, Samed Olukoya, CEO/Founder Investors King Ltd, explained that “Shoprite just upped Nigeria’s economic uncertainties barely a month after OPay and other foreign-owned companies commenced their process of shutting down or have already shut down part or most of their operations in Nigeria.

He added that “at this rate, it would be hard to increase capital importation or boost  the nation’s Foreign Direct Investment with negative economic outlook and weak investment sentiment.

 

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Custodian Investment to Purchase 51% Stake in UACN Property Company

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Custodian Investment to Acquire 9.5bn Shares in UACN Property Company

The management of UAC of Nigeria Plc on Monday announced that they have entered into a binding agreement with Custodian Investment Plc for Custodian to acquire a 51 percent equity interest in UACN Property Development Company Plc (UPDC) from UAC.

In the statement released by the UAC of Nigeria on the Nigerian Stock Exchange, the company said Custodian will acquire 9,465,584,668 UPDC ordinary shares held by UAC, representing 51 percent of UPDC’s issued share capital.

The company further stated that the sale of shares will be done in two tranches.

The first phase includes an initial sale of 946,558,467 shares, representing 5.10 percent of the issued capital of UPDC, on the execution of binding transaction agreements.

This will be followed by a sale of 8,519,026,201 shares, representing 45.90 percent of the issued share cpaital of UPDC upon receipt of requisite approvals.

According to UAC, the agreement marks the start of a new partnership between Custodian and UAC that will achieve both companies’ objectives in the real estate sector. It also marks a significant milestone aligned with UAC’s strategy to focus on its core businesses.

Commenting on the partnership, Wole Oshin, Group Managing Director of Custodian Investment PLC, said: “We at Custodian are excited about the possibilities arising from this partnership with UAC which provides multiple levers for value creation. The rationale for the Transaction is that Custodian and UAC share the view that their ambitions for capturing opportunity in the real estate industry will be better achieved working in partnership.

“UPDC is one of Nigeria’s leading real estate development companies, having completed several landmark residential and commercial developments over the past twenty years. This Transaction will provide Custodian with a platform to capture arising real estate opportunities. It also immediately provides recurring cash flow visibility and attractive yields as a result of its direct exposure to Nigeria’s leading real estate investment trust (“UPDC REIT”) with a track record of profitability and annual dividend distribution which offers a good compliment for our product portfolio.

“We are confident that the recent recapitalisation of UPDC, significant reduction in finance costs, and recently reconstituted leadership have repositioned the company to operate sustainably and capture growth opportunities aimed at increasing stakeholder value going forward.”

Also, commenting on the deal was Folasope Aiyesimoju, Group Managing Director of UAC, Aiyesimoju said: “The Transaction is a significant step in achieving our objectives for UPDC. In 2018, the Board and management of UAC embarked on a strategic review to evaluate the performance of the company and its subsidiaries. The objective was to achieve sustainable positive financial performance from our existing operations and enable management focus on businesses that align with our strategy.

“In reviewing UPDC, the Board weighed the long-term opportunities in the Nigerian real estate sector against the fundamental differences between the cash flow profile and capital needs of UPDC and those of the other entities in UAC’s portfolio. Following its review, the Board concluded that it would be in the best interest of UAC to exit its interest in the real estate sector, allowing UPDC to operate as a standalone legal entity, free to source appropriately structured capital and to unlock value for its shareholders.

“In September 2019, the Boards of Directors of UAC and UPDC jointly announced three significant strategic initiatives aimed at strengthening UPDC and positioning the company to operate as a standalone entity. This included a rights issue to recapitalise the business, plans for UAC to transfer UAC’s equity interest in UPDC pro-rata to UAC’s shareholders (“UPDC Unbundling”), and plans for UPDC to unbundle the UPDC REIT to its shareholders (“UPDC REIT Unbundling”). The ₦16 billion UPDC rights issue was successfully completed in April 2020, proceeds of which were used to reduce borrowing costs and significantly improve UPDC’s capital position.

“In the process of progressing the unbundling initiatives, UAC received a credible offer from Custodian. The terms of the offer compelled the Board to re-evaluate the planned approach to deconsolidate UPDC and influenced the Board’s decision to proceed with the sale of a portion of UAC’s interest in UPDC to Custodian, effectively putting an end to the UPDC Unbundling.

“We are delighted about the positive impact that a strong anchor shareholder like Custodian will have on UPDC and are focused on ensuring a smooth transition.”

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Forex Scarcity Weighs on Manufacturing Sector

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Steel Manufacture At Evraz Plc West-Siberian Metallurgical Plant

Manufacturing Sector Suffers from Lack of Dollar Liquidity

The  Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, has said lack of dollar availability continues to weigh on the manufacturing sector in the first half of the year as the sector recorded its third consecutive month of contraction in the month of July.

According to Yusuf, several manufacturers had to source for forex on the black market, increasing scarcity on the already stressed section of the forex even more. This, other experts have blamed for the high Dollar-Naira exchange rate on the black market.

On Monday, the Naira was exchanged at N473 to a US dollar on the parallel market popularly known as the black market. The local currency gained N2 from the N475 it was exchanged before the Sallah holiday to N473 on Monday when the market opened.

“Across, practically, all sectors, we are experiencing cost escalation, loss of credit lines enjoyed from foreign creditors, forex remittance challenges and many more.  We need an urgent response from the CBN to calm the situation and restore confidence in our foreign exchange management framework,” Yusuf stated.

The Lagos Chamber of Commerce and Industry said most of its 2,000 members have been hit by the dollar shortage and wide foreign exchange rate that is presently eroding their profits.

“If the situation persists, it will lead to lay-offs. If you are not producing, there will be a shortage of goods in the market, prices will go up,” he added

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