Though Nigeria is among the top three economies in Africa and the top two in Sub-Saharan Africa, its real estate industry is yet to grow and develop. On the flipside, however, that is an advantage and also huge opportunity because it makes the country a green-field and an investment destination. BOLAJI EDU, CEO, Broll Nigeria, in this interview with CHUKA UROKO, Property Editor, says the opportunities in the country’s real estate sector will be top on agenda for discussion when stakeholders gather for the forthcoming West African Property Investment (WAPI) summit. He adds that the summit will also be looking at professionalism, data, transparency, capital market/REITs, local manufacturing, etc. He also speaks on various aspects of real estate including retail, offices, others. Excerpts:
The two-day West African Property Investment (WAPI) summit will be holding in Nigeria for the first this month Broll Nigeria is the Platinum sponsor of the summit. What is in it for you as a company?
As a matter of fact, Broll has been the Platinum sponsor of this summit for the three years it has been running. It is our third year of sponsoring both African Property Investment (API) and West African Property Investment (WAPI). This is the first time the summit is holding in Lagos, Nigeria after two consecutive years in Ghana. Broll has always been keen on improving professionalism, sharing best practice to our clients and improving transparency in the real estate industry.
We believe that the best way for that to happen is for all the stakeholders to come together and discuss. This is why Broll is passionate about WAPI and happy to be the Platinum sponsor. We will have investors, developers, corporate and retail tenants, service providers, government representatives, financiers including mortgage and private sector financiers at the summit. We see WAPI summit a great opportunity for stakeholders to come together to share ideas on real estate.
When you look at the real estate industry from the African perspective, you will see that Nigeria is still in infancy in terms of developments such as prime office buildings or retail malls. If you compare prime retail or office buildings in Nigeria in per capita basis to other countries like Ghana or Kenya, you see that our country is quite below.
API, generally known as event organizers and they, are the organizers of WAPI. Who are they and what relationship do they have with WAPI?
API, African conference organizers, are from South Africa. They hold property investment summits in South Africa. They have since launched the West African and East African versions of the summit known as WAPI and EPI summits respectively. Initially, it only congregated in Johannesburg once a year, but as the market developed, it felt that a two-day summit in Johannesburg was not enough to discuss all of Africa’s real estate industry. You can measure this effort by the quality of delegates and discussions they at the summits.
What will be the key issues for discussion and what role will Broll be playing at this summit?
Broll will be leading in two main aspects of the discussion. The first will be on corporate real estate service which is all about providing strategic advice to large and multinational companies, and large/corporate Nigerian clients. This unit of our services is headed by Nnenna Alintah.
We see that, for the corporates, real estate represents the largest cost they make. So, getting their real estate strategy right is actually key in the success of their business. Most people spend more than 50 percent of their day in their work-place and so, having the right environment and amenities can improve the productivity of their staff. That is the kind of service we can provide and we will be talking about that at the summit.
The other thing we will be talking about which will be handled by Gavin Cox, the head of retail in Nigeria, is retail investment, particularly on the basis of mall versus high-street retail. Compared to other countries, Nigeria has not developed much of high street retail. We will be discussing that to point out the benefits of retailers having presence in malls and also on the high street. You cannot put up a mall in every sub-market. These are the two main things we will be headlining.
We will also be looking at the capital market for which a panel will be set up to discuss how we can get more local capital into real estate from the capital market. We will be discussing real estate investment trusts (REITs) and how pension fund can get into real estate. We will also be looking at how insurance companies can invest in real estate.
Most real estate summits always highlight opportunities in the Nigerian market. Where can investors actually find these opportunities?
As I pointed out earlier, the stock of retail malls and commercial offices per GDP and even per capita in Nigeria is below what obtains in other countries. So, investors are still looking at retail and offices and how to have diverse portfolio. If you look at the diverse portfolio in those two sectors, you see that an investor can still invest in prime, Grade A office space that can attract multi-nationals. Investment can also be made in good, strong and quality Grade B office buildings which focus on the local market.
Nigeria is viewed as one of the fastest growing countries in the world by virtue of its population. It is projected that the country will grow from 180 million people at the moment to 400 million by 2050. So, if we have a housing deficit estimated at 17 million today, that deficit will be close to 40 million by 2050. Most of that deficit is going to come from medium to affordable housing. So, investors are looking to come into that market.
But most times, discussions about these opportunities centre on commercial real estate whereas this is a country with huge housing deficit as you have just pointed out. Why not residential real estate?
At the WAPI summit this year, there will be a session that will be focusing on residential market. That session will be looking at key stakeholders including developers on the supply side and Nigerian Mortgage Refinance Company (NMRC) and the Federal Mortgage Bank of Nigeria (FMBN) on the housing finance side. The authorities of these companies will be available for discussion.
Let us look at the retail market which seems to be on holiday in terms of new mall development. What is the state of this market at the moment?
From the development of the first mall, The Palms, in Lekki in 2004, the retail market grew by over 900 percent in Nigeria as at 2015. That growth, in any economic circumstance, cannot be sustained. The country has gone through a major recession and the retail market took the biggest hit. We had the naira devaluation which increased the rate of exchange of naira to the dollar; there was an increase in the price of the goods stocked which were mainly imported; there was the issue of inflation which peaked at 19 percent; there was also rising unemployment and falling salaries. So, disposable income came down and these impacted negatively on the market.
There is however a lot of latent demand for retail but investors are looking at smaller malls, no longer the 20,000, 25,000 to 30,000 square metre mall, but 5,000 or 8,000 square metre malls which will be designed in such a way that they can increase the size if things improve.
Many of the malls, especially the big ones in tier one cities, have recorded high vacancy rate. Tell us what is happening at the malls?
Vacancy rate in the market as a whole spiked 20 percent. Newly completed malls from late 2015 to 2016 had slower take up rate than anticipated. But this year, although it has been quite challenging, we have seen very strong take up. We have seen new malls with up to 80-90 percent occupancy rate. Ikeja City Mall is 100 percent occupied, Maryland Mall is almost 100 percent occupied. But the rate of occupancy is all about getting your marketing correct, ensuring that you have the right tenant mix, ensuring that your rents are competitive within the market and location you are in.
When you talk about the opportunities in Nigeria and African market generally, you cannot ignore the inherent challenges. What are those challenges that can work against investment?
There are many challenges. I can list a dozen if not more of them. But I will take up two major ones. The first is data and transparency. For investors coming into the country from West Africa or the wider investment community, they would like to operate in markets that are transparent and data is easily accessible. Nigeria is not yet at that stage. Investors still rely on service providers like Broll to help them see through the data and transparency. Broll has a strong unique selling proposition (USP) in this area. We have been in the market for over 30 years. In Nigeria, we have been involved with many retail outlets. So, we have been able to deal with these challenges by helping investors and developers coming into the country with information and data.
The second challenge is domestic manufacturing base which is very poor. We have to import much of the materials used in the construction industry which means construction cost here is relatively higher than what is obtainable even in the neighbouring Ghana. At the same time, because you have to import everything, you have to rely significantly on foreign exchange in order to do your transaction and construction. These are major challenges.
Investors coming into the country therefore need very strong and knowledgeable local partners and Broll provides very good advisory services on that. They have to partner with local operators to understand the law of the land and how to acquire property.
The key thing is that the market needs more transparency and data and more local knowledge. On this, we can work together with incoming investors. But the government also needs to do its bit in terms of growing the economy and boosting local manufacturing.
With your expertise and local knowledge, how much impact do you think you have had on the real estate market in Nigeria?
Broll’s presence has been significant in the market. Primarily, we have been able, through our services in corporate real estate, property management, facilities management, etc, to raise the bar in terms of standard so that if an international investor is coming from South Africa or UK and is investing in development, what they get from us is just the same as what they see anywhere else. We provide corporate real estate services where we work closely with the Broll Property Group which is our parent company, and also with the CBRE.
The large corporate organizations coming into this market are looking for seamless service which compares with what they see in developed markets. Broll has been able to offer such service. But we don’t always rely only on expatriate staff. We have local experts like Nnenna Alintah who heads our corporate retail service. She had worked in America before coming back home to join Broll. I have also worked for 16 years in London before coming back to Nigeria and joining Broll.
So, we have people with global expertise and local knowledge working here. We are Nigerian staff but we have international knowledge plus global expertise and best practice which we have been able to bring back to help our clients. We also use that knowledge to impact on our staff here.
The commercial office market is struggling with low demand. People say the country may have over-built, leading to an oversupply. What’s your take on this?
I think we need to look at supply from two angles. Firstly, you look at the fact that Nigeria is one of the top three economies in Africa and one of the top two in Sub-Saharan Africa. Lagos is the centre of economic activity in the country. If you look at the entire supply in terms of total square metreage, you see that there isn’t an oversupply of both Grade A and B office buildings.
What happened was that most of these offices were built about the same time which coincided with the recession in the economy. There was also the oil price slump to below $40/barrel; the naira went down from N167 to almost N500/$ before coming down to the present exchange rate.
Before all these, activities in economy literally stopped and so the main drivers of the office space take up including oil and gas, telecoms, financial services firms all contracted, rationalized their staff and operations. For this reason, there was an oversupply. What we have however is a short term oversupply which might last for another two to three years. But if you look at it on long term basis, there is still room for further development, but that needs someone who can take a long term view of 10-15 years. At the moment, there is no new development coming up. We need to get over the present cycle before we start seeing new developments in this segment of the market.