The opportunities created amid the COVID-19 pandemic have raised optimism that the residential, construction and industrial segments of real estate market are to drive the sector’s growth, while yielding good returns for developers, investors and landlords, according to Nigeria Real Estate Report 2021.
The report by Ubosi Eleh and Company said the demand for residential real estate is expected to increase, as work from home becomes a more permanent influence in space demand.
The increase in demand for warehousing amid a surge in e-commerce transactions in Nigeria is expected to fuel the growth of the industrial subsector. Also, the execution of projects that were put on hold amid COVID-19 lockdown and the rebuilding of recently vandalized properties during the ENDSARS protest is expected to boost the expansion of the construction sector and thus, drive the growth of the overall real estate market in 2021.
Though the housing sector growth potential would only be fully realized if significant, concerted changes are made to Nigeria’s housing strategy, the country’s residential property market is expected to witness a boom this year as increasing demand for housing; either for purchase or rental, fuelled by a growing population, which is moving close to the 2030 estimate of 263million, persists.
The report revealed that investment in products that meet market demand like one and two bedrooms in strategic locations in economic cities like Lagos, Port Harcourt and Abuja will continue to be in high demand-sale or lease- and also yield good returns.
“By and large, the outlook for residential real estate looks very good in 2021. This is across all zones of the nation. Again, this will hold either for sale or lease. The market will see a boom, as investors seek alternative investment outlets for investible funds with the collapse of money market instruments. Residential property values; residential and sale, will defy expectation this year as it is projected to easily attain 10-20 percent increase in value across board.
“Short stay and apartments with flexible rent payment plan are projected to see growth as tenants’ purchasing power continues to slide. Hotels and other housing service providers that are yet to evolve with market realities will lose some market shares to the new ventures.”
Following increasing security awareness, the demand for more secure estates and gated communities will influence the choice of tenants/homebuyers in choosing a location. This will become more important in residential property development and could shore up the values of such properties in the estates by as much as 5-8 percent.
While inadequate and decaying infrastructure and increasing densification may have impacted the value of properties in Lagos Island (except Banana Island), properties in locations like Chevron, Agungi, and Osapa, which reported an average rental value of 6 percent in 2020 are expected to give investors good return this year.
The report noted that the impact of COVID-19 lockdown and consequently, the shift from brick and mortar stores to online shopping brought more emphasis on the importance of warehouse and logistics in Nigeria.
As online sales are expected to grow even after the pandemic has eased, so is the demand for logistics and warehousing. With the increase in the number of online retailers, which is expected to grow in the nearest future, availability and delivery times would be vital to retaining customers amid the expected industry competition.
“The demand for warehouses around several cities in the country is not expected to increase despite the sustained growth in online retail and logistics. Many of the online retailers are engaged in “just in time” deliveries, and in many cases, act only as middlemen and have their suppliers deliver straight to the customers, thereby saving themselves logistics and warehousing. Following the ban of motorcycles in some major roads in Lagos, some ride-hailing companies changed their business model from conveying passengers to delivering items,” the report added.
2021 Real Estate – Lagos Industry Report
Overview of the Report
In 2020, the GDP of the Nigerian real estate industry was ₦3.96 trillion, a 9.4% decline from the prior year’s ₦4.37 trillion. The Lagos Real Estate Market was adversely affected by a slowdown in business activities and job losses, elicited by the coronavirus (COVID-19) pandemic.
According to the World Bank, one major change observed as a coping mechanism at the peak of the COVID-19 pandemic was an increase in the size of households from an average of 5.5 members in February 2019 to 6.6 members in November 2020. A major reason for this development is that individuals moved in with parents or other relatives to pool incomes and manage the challenges faced through the COVID-19 crisis. The housing deficit in Nigeria remains high at about 22 million, comparing less favourably to other African countries like South Africa, Kenya, Angola and Ghana with housing deficits of 2.3 million, 2 million, 1.9 million and 1.7 million respectively. The huge gap between Nigeria and its peers is due to the large and increasing population in Nigeria coupled with other factors such as considerable rural-urban migration, high interest rates on mortgages and weak capacity building in the industry.
The commercial real estate market in Lagos which comprises office space, retail, hospitality and industrial sub-segments was also impacted by the COVID-19 pandemic as many organisations shutdown activities to comply with the lockdown restrictions imposed by the government to curb the spread of the virus. In addition, some expiring lease contracts were not renewed in 2020 due to the emergence of remote working. The hospitality segment witnessed a drop in occupancy rate to circa 25% in 2020 from about 40% in 2019. Many operators in this segment, particularly hotels, were forced to include “meal take-outs” as a service offering to moderate revenue losses during the year.
In the industrial sub-segment, there is rising demand for warehousing and logistics services from e-retailers driven by opportunities arising from the lockdown restrictions imposed by the government. We predict that this demand will remain strong post-COVID as e-commerce related demand and supply growth continue to move along an upward trajectory.
