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Commercial real estate development attracts N400bn investment

By on June 30, 2015

As a sign of the increasing potential of the Nigerian economy and its attractiveness to global players, developers are expected to invest close to N400bn in the development of luxury office accommodation across the country between now and 2017.

This year, office complexes, including the Civic Centre Towers, with 13 floors and 9,172 square metres; Nestoil Towers, with 15,000 square metres of space; and Kanti Towers, Lakepoint Towers, World Trade Centre, with 5,517 square metres, 13,400 square metres and 26,400 square metres of space, respectively will be delivered in Lagos and Abuja.

Those to be delivered in 2016 include the Heritage Place, a 14-floor office complex worth over N19bn; Africa Towers in Abuja and The Wings Office Towers, comprising two towers and approximately 25,500 square metres of lettable office space in Victoria Island, Lagos.

The Waves Towers and Bloombury Waterfront Towers are also expected to be completed in 2016 at the cost of N25bn and N36.216bn, respectively.

In 2017, the Kingsway Tower, another high-rise building comprising offices, ground floor retail, restaurants and basement parking is billed for completion.

In all, about 20 office complexes are under construction in prime locations across the country and are expected to be delivered in the next 24 months.

According to a report by North Court Real Estate, despite the dismal performance of other asset classes in recent years, activity in the real estate sector has remained robust and the country’s local real estate market across all segments is typically driven by rising incomes, increasing urbanisation and population growth.

Analysts are of the opinion that the country’s rebased Gross Domestic Product and the growing interest of foreign investors have increased the quest for office spaces of international standards.

With this in mind, many developers are taking the plunge into commercial real estate.

According to Broll Nigeria, office space in Ikoyi, Lagos currently costs $1,000 (about N198,849) per square metre, while it costs $850 (N169,022) in Victoria Island.

In Lekki, Lagos Island, Ikeja and Yaba in Lagos, as well as the Federal Capital Territory, office space per square metre costs $240 (N47,723), $187 (N37,184), $180 (N35,792), $122 (N24,259) and $450 (N89,482), respectively.

Apart from developers tapping into the growth of the economy, some companies have also started the construction of high-rise office complexes for their use and for commercial purposes.

These include BAT Rising Sun, a 13-storey structure with 19,500 square metres of space built for the British American Tobacco Nigeria and expected to serve mix-use purposes.

Others are Wapic House, Afren Towers and NIPOST Towers, built on 4,500 square metres, 12,000 square metres and 22,000 square metres, respectively.

The Director, Real Estate Advisory, Mr. Tayo Odunsi, said growing domestic and international companies had helped to drive the office market primarily in Lagos and Abuja.

He added that over the past few years, the stock of A-grade commercial property in the country had been very low, but that a development pipeline of almost 300,000 square metres across the country in the next 24 months meant that the supply of A-grade space would be more than adequate to cater for the existing effective demand.

Analysts note that the development is also based on the fact that institutional investors have also taken an aggressive stance on Africa in the past few months, with a forecast of 20 per cent net annual returns from investing in shopping malls, office blocks and industrial complexes.

Among the institutional investors are Actis and RMB West Port, which are the top investors in commercial real estate in Lagos and Abuja.

Actis has also invested in the retail sector with developments such as The Palms and Ikeja City Mall, and is also involved in The Wings office complex, Jabi Lake Mall, Osapa Mall and Heritage Place, among others.

Local investors are also not left out, with Investment One, Purple Capital Partners, Quantum Luxury Properties, Cardinal Stone, FBN Capital, ACA, Sterling Asset Management, Mansard Insurance and the Suru Group all investing in prime commercial properties across the country.

North Court Real Estate, in its outlook on the sector, stated that in the previous year, Nigeria’s ultra-high net worth individuals had 25 per cent of their assets in real estate, with equities and other instruments following at 18 per cent and less.

It added that a renewed interest from international companies expanding or making a first entry into the country meant that the interest and demand in the office sector remained consistent.

“The mega city, Lagos, shoulders up to 65 per cent of the country’s business activities, contributing up to 15 per cent to the national GDP. The commercial property market in Abuja is driven by governmental activities, while Port Harcourt’s is driven by its rich resource base. Most office developments that are currently taking place will be completed within the same time period; mid-2015. This surplus supply will open tenants to more options and lead to increased competition among landlords,” the firm noted.

While the development is seen as a positive growth for the economy, some experts are, however, of the opinion that the commercial real estate space may soon be saturated.

The Principal Partner of the estate surveying and valuation firm, Kola Akomolede and Co., Chief Kola Akomolede, said the number of real estate developments in the country was on the rise but added that unless the economy improved either because of the change in government or improved business environment, many of the office spaces would remain vacant for a long time.

He said, “The way things are, when these projects are completed, there will be a glut. The demand for accommodation and offices is high but there has to be improvement in the economy or there will be a lot of offices that will remain empty or unlet for a long time.

“Like we have in the residential real estate market, there are a lot of empty flats in Ikoyi, for instance, and a lot of them will remain so unless there is a radical change in the economy.”

The Principal Partner, Bode Adediji Partnership, Mr. Bode Adediji, however, said that despite the rapid growth of commercial real estate, the country was still far behind in terms of the rate of demand and supply.

He added, “I do not see any trend in the current supply as a threat to the property market; from time to time, we may have occasional sluggishness, but our property supply scenario is still far behind what is compatible with our projected rate of growth.

“So, whether in the commercial, industrial or residential segment, overall, despite the temporary glut, we still cannot meet the projected demand and that is reflected in our population, rate of economic growth and the kind of shortfall we have over the past decade. Yes, we may suffer temporary glut but in terms of overall assessment, we are still far behind what we ought to have.”

 

[Punch]