With the delivery of The Wings Towers and additional two more stocks before the end of the year, rents in the sector are expected to fall further.
Besides The Wings Towers with 27,000sqm space, over 47,000m2 of office space is expected to be delivered with the likes of Alliance Place (6,670m2) and Kingsway Towers (12,000m2), nearing completion in the next 12 months.
It was learnt that in 2016, Nigeria’s real estate sector slipped into low ebb due to drop in oil prices, volatile foreign exchange, economic recession and government’s anti-graft war.
Already, there has been a decline in office rents from an average of $1,000 square metres (sqm) to $800 sqm and developers are finding it hard to find premier tenants to occupy buildings with occupancy rates remaining low in several new office buildings.
It was learnt that economic recession in the country has made demand for space dropping off in Lagos.
According to latest report by analysts from Broll Nigeria, completion of the Grade A offices would cause achieved rent to fall further in previous quarter where pressure was noticed.
The report noted: “Achieved rent are expected to fall further as landlords of newly completed developments compete for the shallow pool of corporate tenants. Pressure in the previous quarter will likely persist as the market remains exceedingly competitive for landlords.”
Recent developments in Nigerian economy have impacted heavily on real estate sector, weighing down business and causing capital flight. However, the report said that the situation had caused decline in office rents, as developers were finding it difficult to find premier tenants to occupy buildings.
Also, Chairman, Stanbic IBTC Bank, Atedo Peterside, noted that the on-going recession has been a product of low business and lack of investor confidence arising from poor handling of the economy by its managers.
He said that this was the singular reason for low Gross Domestic Products (GDP) growth, high inflation, declining productivity and consumer purchasing power that have affected all sectors of the economy, particularly real estate.
Before now, developers along Ikoyi, Victoria Island and Lekki, had seen office buildings as lucrative business when rents were traditionally quoted in dollars on a square metre basis for foreign firms.
Rents in this market segment ranged from an average of $850sqm to $1,100sqm which was quite astronomical and a very few local firms could afford such rent.
However, due to the recent rapid devaluation of the country’s currency, rents can now be paid in the naira equivalent as agreed in the lease agreement between the tenant and the developer.
Due to the current lull in the sector, the Lagos Island office market development pipeline has slowed down with several office and mixed-use buildings still under-construction and set for delivery in 2017.