After more than a year of low transaction activity and a high vacancy rate due to COVID-19‘s impact, Nigeria’s office market fundamentals are expected to improve in 2022, with fast expansion in the technology sector fueling occupier demand.
This has given hope to a market that has been suffering with 324,015 square meters of pipeline office space, which accounts for more than 25% of the existing stock of 324,015 square meters. By the fourth quarter of 2021, this offered a bleak picture for the market.
In the first quarter of 2022, there were around 3,678 square meters of transactions in the A-grade or premier office segment of the market, which was the hardest hurt by social distancing laws and work-from-home (WFH) policies imposed by some organizations against COVID.
According to a recent market analysis by Estate Intel, new leases signed during this time period are expected to increase by 73 percent, with the technology sector leading the way. According to the poll, Ikoyi, Lagos, has once again proven to be a favored location for occupiers, accounting for more than half of all new leases signed.
“We expect to see much more occupier activity from the IT industry in the following quarter.” The energy and telecoms industries are projected to boost activity in the next quarters, according to Dolapo Omidire, CEO of Estate Intel.
According to experts, Africa’s IT sector is currently at an all-time high, with funding expected to reach $7 billion in 2022, up from just $25 million in 2015. Furthermore, the continent currently contains seven unicorn firms (valued at $1 billion), up from just one in 2019.
While the office market had continued to shift over the last year due to the pandemic, Omidire described the tech industry as a crucial driver of formal office demand, noting that technology had remained the core driver for hybrid and remote working practices.
While digital businesses have been at the vanguard of encouraging flexible working among their staff, possessing a formal office location remains important to the majority of these companies, according to him.
He highlighted Estate Intel’s assessment of the top 50 tech businesses, including start-ups and multinationals, in Lagos, Nairobi, and Johannesburg, which found that 94 percent of them have a proper working space.
According to the poll, 85% of the companies occupied leasable space, with 3% using coworking spaces, 4% using owner-occupied offices, and 6% using entirely remote companies.
Meanwhile, the COVID-19’s impact on real estate has resulted in a surge in demand for premium residential properties. According to BusinessDay’s data, this industry category is gaining traction in terms of increased demand.
Two primary drivers are driving demand in Nigeria: an increase in the number of high-net-worth individuals looking to acquire numerous properties and expand their portfolios, and a drop in the value of the naira against the dollar, giving Diaspora buyers an affordability advantage.
Aside from the uncertainty that drove many purchasers to seek safer neighborhoods within gated communities, the pandemic’s impact encouraged working-class homebuyers to see the need for better homes with access to amenities that promote WFH policies. The needed facilities are a steady electricity supply and stable internet connections.
For the most part, the naira’s depreciation against the dollar has made property purchases more cheap for individuals in the Diaspora with easy access to the dollar, resulting in an increase in demand.
According to Knight Frank Nigeria, sale prices in the premium neighborhoods of Lagos, Abuja, and Port Harcourt increased by 10% to 12% in the latest quarter.
The leading estate agency services provider cited adequate security and power supply, as well as the quality of houses in these areas, as reasons for the price increase.
Frank Okosun, the company’s chief executive officer, told BusinessDay in a phone interview that the real estate industry will increase by 1.5 percent in the first quarter of this year, citing the pace of activity in the sector in the first two months of the year.
Okosun anticipates a gradual rise in demand for quality real estate, but not necessarily for super-luxury properties. “A growing middle class desiring high-quality housing will drive up demand,” he said.
“Demand will be sustained as long as the options continue to meet the expectations of home buyers.” The state of the national and global economies is expected to dampen the increase of this demand,” he noted.
Odunayo Ojo, CEO of AUC Property Development Company (UPDC), agrees with this assessment, but adds that his firm, which is re-entering the residential market, is led by cautious optimism.
Rather than the premium or super-luxury options that were UPDC’s signature, he said they would be looking at mid-income homes this time, while still in the luxury category. The hallmark of luxury residential dwellings, according to Ojo, is good construction quality.
