- Real Estate Recorded Marked Improvement in H1 —Report
In the first six months of 2018, the Nigerian economy as a whole experienced significant improvements and this was also the fate of the real estate sector, a new report by Northcourt, a real estate investment solutions company, has said.
The various subsectors — residential, retail, office, hospitality and industrial – experienced stabilisation of rents, revival of some suspended projects and the commencement of new ones, in stark contrast to H1 2017, the report noted.
It added that the improvement was evident in the prices of building materials that dipped or remained constant when compared with last year’s.
“This is expected and understandable, seeing that foreign exchange rates have stayed fairly stable for about 12 months now and is readily available,” the report added.
According to the research, the residential market showed improved price stability and levels of activity in comparison to H1 2017, even though it is fairly high while vacancies still exist in the high to mid income locations.
It explained that as land prices and other construction costs soared, developers continued to stay competitive by intensifying land use, reducing plot sizes, car parks and built-up areas in a bid to supplement the decline in profitability caused by weakened prices since 2016/17.
The creativity by developers, the report noted, brought about general improvement in design and finishing features provided in recent developments, adding that the quality of materials and workmanship could be improved as it remained a major differentiator.
The office market in Lagos, Abuja and Port Harcourt continued to struggle in the review period, the report stated, noting that rents either stayed or declined to remain competitive, while the security risks and environmental hazards in Port Harcourt sent office rents to its lowest in over five years.
It added that Grade-A office vacancies in particular remained high, “and it appears the economy would need to strengthen much more to reverse this trend. The wait for the global brands looking to open up shop in Grade-A signature addresses worthy of their presence may be taking too long.”
As it has been the case for some time now, the report found that retail continued to struggle with the shrinking middle class and the dwindling purchasing power of consumers.
“However, with the exchange rate stabilisation, planning around operational costs and profit projections is much more feasible for retailers. Local investors, emboldened to make further investments, softly opened the Next Mall in Port Harcourt and The Atlantic in Lagos,” it stated.
It added, “Vacancy rates largely reduced across the Grade-A malls. The Palms and Ikeja City Mall had the lowest vacancies at zero and two per cent, respectively. Novare Mall came in at 28 per cent, down from 47 per cent at the end of 2017. Artee’s Port Harcourt Mall, Big Treat and Genesis Centre had eight per cent, 15 per cent and 25 per cent, respectively.
“Ceddi Plaza and Gateway Mall in Abuja recorded 21 per cent and 38 per cent, respectively. Abuja’s largest mall – Jabi Lake (20,000sqm) recorded the highest vacancy rate in city – 40 per cent due to a number of stores that closed down in Q1 and high rentals.”
According to the report, the good news from the sector is however that while some international investors find business conditions less favourable and are instead pursuing retail interests in Eastern Europe and Eastern Africa, local high networth individuals who are not disturbed by currency risks, amongst others, are moving into the retail space to make large-scale investments.
The Director, Real Estate Research and Advisory, Northcourt Real Estate, Ayo Ibaru, stated that players in the real estate market started the year with plans to maximise the economy’s announced recovery, having been burdened with managing underperforming assets during the five-quarter long recession.