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.
Oil Prices News: Oil Gains Following Drops in US Crude Inventories
Oil Prices Gain Following Drops in US Crude Inventories and OPEC High Compliance Level
Global oil prices extended their 2 percent gains on Thursday after data showed U.S crude oil inventories declined last week.
The price of Brent crude oil, against which Nigerian oil is measured, gained 0.2 percent or 7 cents to $43.39 a barrel as at 12:10 pm Nigerian time. While the U.S. West Texas Intermediate (WTI) crude appreciated by 8 cent or 0.2 percent to $41.12 barrels.
Oil prices extended their three days gain after the American Petroleum Institute said the U.S crude inventories declined by 5.4 million barrels in the week ended October 9.
The report released after the market closed on Wednesday revealed that distillate stockpiles, which include diesel and heating oil, declined by 3.9 million barrels. Those stated drawdowns almost double analysts’ projections for the week.
“Much of the fall is due to the effects of Hurricane Delta shuttering U.S. production in the Gulf of Mexico, and as such, will be a transitory effect,” said Jeffrey Halley, senior market analyst, Asia Pacific at OANDA.
“Therefore, I am not getting too excited that a turn of direction is upon markets, although both contracts are approaching important technical resistance regions.”
Also, the report that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, referred to as OPEC+ attained 102 percent compliance level with their oil production cuts agreements bolstered global oil outlook. Suggesting that demands for the commodity are likely not growing and could drag down prices in few weeks, especially when one factor in the reopening of Libya’s Sharara oil field, workers returning to operation in Norway and the Gulf of Mexico.
Oil Prices Gain on Tuesday Despite Expected Surge in Global Oil Supplies
Oil Prices Rise Despite Expected Surge in Global Oil Supplies
Oil prices gained on Tuesday despite Libya opening Sharara oil field for production, labour in Norway reaching an agreement with oil firms to return back to work and oil workers in the U.S returning to the Gulf of Mexico region after the Hurrican Delta.
Brent crude oil, against which Nigerian oil price is measured, gained 1.77 percent to $42.46 per barrel as at 11:15 am Nigerian time on Tuesday.
While the US West Texas Intermediate (WTI) crude oil gained 2 percent to close at $40.22 per barrel.
The improvement in prices was after oil prices plunged as much as 3 percent on Monday following a resolution reached by Libyan rebels and government to commence oil production at the nation’s largest oil field, Sharara Oil Field.
This coupled with labour agreement with oil firms in Norway was expected to boost global oil supplies and eventually weighed on prices and disrupt OPEC+ production cuts strategy.
However, prices surged after Nancy Pelosi said she would commence talks on $1.8 trillion stimulus package following President Trump’s return to the White House after he was rushed to hospital following a positive COVID-19 test.
Joe Biden Win Could Boost Oil Prices, Says Goldman Sachs
Oil Prices to Surge Once Joe Biden Wins -Goldman Sachs
Goldman Sachs, one of the world’s largest investment banks, has said Joe Biden win could boost global oil prices despite weak global economic outlook and COVID-19 negative impacts on the world’s growth.
The investment bank, however, remains bullish on both oil and gas prices regardless of the election outcome in November.
The bank sees oil and gas demand rising enough in 2021 to supersede election results but explained that Biden win could bolster prices by making production more expensive and more regulated for producers in the U.S.
In a note written by the bank’s commodities team on Sunday, it said “We do not expect the upcoming U.S. elections to derail our bullish forecasts for oil and gas prices, with a Blue Wave likely to be in fact a positive catalyst.”
“Headwinds to U.S. oil and gas production would rise further under a Joe Biden administration, even if the candidate has struck a centrist tone.”
Goldman Sachs explained that if incumbent, Trump, is re-elected with pro-oil and gas policies in place that “its impact would likely remain modest at best,” Goldman’s analysts wrote, “given the more powerful shift in investor focus to incorporate ESG metrics and the associated corporate capex re-allocation away from fossil fuels.”
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