Investors see opportunity in student housing, Grade B office space
Fresh investment windows are opening for savvy and long-term investors as new property development frontiers emerge at major and sub-markets across Nigeria, a development close market watchers describe as a makeover for the crippling impact recession had on the Nigerian real estate sector.
The new trend, they say, offers huge opportunities to investors who are ready to make the shift, which the market demands from both existing and intending investors.
A major trend that is gaining traction with attractive opportunities for developers and investors alike is student housing, the demand for which is driven by increased student population.
Nigeria has a population of over 170 million with a growth rate of 2.6 percent per annum. 70 percent of its population is below the age of 30. There are 133 universities in Nigeria, and most of them were built without adequate provision for accommodation.
“We are already discussing with some university authorities on how to provide accommodation on partnership basis. It is one area that we see opportunities for investors, and we are already considering working with the authorities of University of Lagos,” a developer who does not want to be named confirmed in an emailed interview.
In the commercial segment of the market, David Mbah, Sales Consultant at Fine and Country West Africa, disclosed to BusinessDay that demand is now shifting from Grade A to Grade B office space, noting that existing corporate tenants will migrate to newly built offices while older buildings will be left vacant, and landlords will look to sell, renovate or use as co-work spaces.
“We have seen increased supply of co-work spaces and that is one other area where opportunity exists for investors at the moment,” he said in an interview.
In the residential market, he noted that the high vacancy rate in the up-market presents an opportunity for investors to either become more creative with their offerings or shift focus to the mid-level market, as there are three major factors to consider when re-focusing to the mid-market, including location, price and size.
“Any investor that buys any of these ‘re-engineered’ developments is sure to enjoy high return on investment, and shorter pay-back period. This is due to the low capital and entry cost required,” he says, adding, “other opportunities for investors include buying plots of land in emerging locations with high return on investment on the outskirts of Lagos, such as Lekki free trade zone, Ibeju-Lekki, Langbasa, Ikorodu, among others.”
Darl Uzu, CEO, Crown Realties Limited, developer of the signature Crown Estate in Lekki, Lagos, agrees that investment focus has shifted in tune with market realities. He revealed at a real estate forum that smaller housing units were what the market demanded now.
“To invest in the residential real estate now, you need to study and understand the behaviour of the buyers,” he says, explaining that, as developers, they now favour apartments, town houses and multi-family units as against villas, duplexes and stand-alone houses.
In the past 12-24 months, whether the story is about residential, commercial or retail developments, the property market is presently oversupplied, leading to high vacancy rates, which shows as high as 34 percent in the residential, about 30 percent in commercial and over 50 percent in the large malls.
In terms of available but unoccupied space, the commercial office space segment is ahead, and this is manifesting in the steep fall in rental charge the segment has seen in the last two years. Close market watchers recall that, in 2015, asking rent for prime office space was between $900 and $1,200 per square metre; in 2016, it dropped to between $700 and $800 per square metre, and now, it is between $600 and $750.
This represents about 32 percent rent drop in just two years, and analysts predict that this may go down further considering that, in the next 12 months, beginning from the last quarter of this year to the last quarter of 2018, over 75,000 square meters of new office space will be introduced to the market.
But that is for the Grade A office space, which also applies to residential developments in highbrow locations such as Asokoro and Maitama in Abuja, Ikoyi and Victoria Island in Lagos, Trans-Amadi and Old GRA in Port Harcourt, where rents, before now, were not only very high, but also dollar-denominated.
“It is buyers market; property purchasers and tenants are spoilt for choice, and now dictate price, lease tenure, payment terms and finishing specifications,” Mbah confirmed to BusinessDay.
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