Amid pockets of social instability in different parts of the country, land prices have continued to rise in most regions while prices of office spaces and houses were affected negatively in the real estate market within the first half of this year.
According to a report released by Northcourt real estate for the half year performance of the real estate management , the high cost developing property in a country where over 50 per cent of construction materials in the face of weakened currency.
Unlike the previous seasons of gradual growth, land values appreciated sharper than before. So much so that land prices Lagos along the Ikate , Agungi- Abraham Adesanya- Sangotedo axis, is widely regarded as overpriced; pushed up by speculators with an eye on the Lekki free Trade zone, The Dangote refinery project amongst other anchor projects as they near completion.
The centrality of land to the development of real estate remained immovable and unchallenged for the first half of the year. The Lagos State government, eager to increase its revenue, promised a 15 percent discount on all land use charges paid before April 14. Based on the controversial Land Use Act, the State Government sought to encourage payment of the charges as a means of funding its proposed developments. Land grabbing was taken to a whole new level as 1,200 cases were recorded in the nine months ending march 2017 further underscoring the place of land as an investment asset.
According to the report, the zealous implementation of the Whistleblowing Act had far reaching consequences on the real estate sector without any positive. An effect of this is an increased level of caution on spending by moneybags. Again, willing partners to such transactions are harder to find. Real estate market players are now picky in the kind of clients they do business with and potential tenants now insist on knowing the Landlords of space being considered for lease. Whistleblowing also reduced both the frequency and value of investments.
Furthermore, investors were largely worried that despite the much-vaunted Economic Recovery and growth Plan (ERGP) the Government was still playing too much a role in the economy.
The Chief Executive Officer, NorthCourt Real Estate, Tayo Odunsi said,” the inability of government to access the national budget assessed earlier than second quarter of 2017 impaired on capital expenditure and others initiatives meant to truly stimulate the country out of recession resulting to built property prices either stayed constant or declines in lost locations and only rising in select area where quality and location induced growth.”
Despite this challenges, the government equally demonstrated some commitment towards financing house delivery a World Bank loan of $300 million for that purpose.
In all, the winds of private capital seem to be blowing in the country’s favour as shown by an over-subscribed diaspora bond and signals from the national and some state governments suggest a willingness to do what is necessary to support this.
In the office rental, after contending with a fall in demand for almost two years, grade A office space continued to see increased supply, albeit at a slower rate. The forces of demand and supply would subsequently force not only rents to go down, but several other terms and payment structures for office space had to be relaxed and rigged in the face of a slowly recovering economy.
Landlords in prime locations were willing to accept quarterly payments, giving moratoria of up to 6 months for very large spaces or to attract certain tenants. Some were also willing to accept rents in arrears and offered to pay the transaction fees on behalf of the tenant in a bid to reduce the barriers to entry.
Occupiers in Grade B buildings seized the opportunity of reduced rents/rent conditions to move into A-grade buildings. This trend , the analyst said is expected to continue, as market conditions are not recovering fast enough to encourage otherwise.
The deadline in prime office space rent may not end soon as approximately 30,000sqm of grade-A space is expected to join the jostle for occupiers before the close of 2017 in the form Alliance Palace, second quarter, 2017, Median Towers third quarter and Kingsway Tower ( fourth quarter) amongst others.
But structured office blocks only tell the story. Many organisations, blue chips inclusive, have opted for self-managed conversions ( Residential detached housed converted to office buildings) as a cheaper or at least more manageable option to house their enterprise. Along the same lines, co-working spaces have become a major phenomenon pushing down the upfront cost small and medium sized companies need to spend on space. The co-working hub sub-market has grown so big increasing by 21% (from 34 to 41) within the last six months in Lagos alone. The first co-working conference in Nigeria is billed to take place in Q3 2017.