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Real Estate Continues to Lag Economic Growth

Proshare

Friday, June 22, 2018 2:20PM / FDC

Real Estate Growth in Q1’18

The real estate sector recorded negative growth in tandem with the Nigerian economy during the 2016 recession. However, since Nigeria’s recovery from the recession in Q2’17, the sector is still lagging behind general economic performance. According to the National Bureau of Statistics, the sector contracted further to –9.4% in Q1’18 from -5.92% in Q4’17 and -3.1% in Q1’17. High borrowing costs, low demand for properties, rent service charge defaults and low construction activities have slowed activities in the sector and hindered growth rate.

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Property Trends 

Residential

In the residential market, developers have started reducing plot sizes, car parks in a bid to intensify land use. In addition, the recent trend of improved design and finishing features has increased the demand for luxury real estate in prime locations such as Lagos and Abuja. 

Commercial

On the commercial front, the retail sub-category witnessed an increase in demand for high street malls within central locations such as Lekki, Ademola Adetokunbo way and Wuse. Entertainment and leisure features have become major demand pull factors for large malls while car park payments are a key income stream for the malls. Demand in the office sub-category remains driven to a large extent by co-working spaces as developers offer flexible prices and terms. Grade-A developments which slowed due to the recession marked significant progress and received interest from international and local occupiers. There has also been a strong demand for grade B and below spaces relative to their demand in 2017. 

Industrial

The industrial market has shifted focus to locations with lower rents and taxes such as Ogun state. However, certain infrastructure developments need to be in place to fully maximize this demand. 

Vacancy Factor 

The lull in activities in the real estate sector has also reflected in vacancy rates across the country. Vacancy rates in three of the country’s real estate hubs (Lagos, Abuja and Port Harcourt) in Q1’18 are as follows:
 
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Other Recent Developments

Nigerian Army launches ‘Apple Island’ 

The Nigerian Army has partnered with construction giants Julius Berger and Van Oord to build a mixed-use development for top military officers. The project is expected to be sited on a reclaimed parcel of land from the Lagos Lagoon and would cover a total of 45 hectares off the shoreline of Banana Island. It would consist of a shopping mall, guest house, police station, a mosque and clubhouse. The project is set to provide approximately 100 housing units for military officers. 

Performance of real estate companies in Nigeria 

Currently, there are 4 companies, UPDC, UAC Property, Union Homes and Skye Shelter Fund, listed on the Nigerian Stock Exchange. During the review period (April 30th -May 31st), the share prices of three of these companies remained flat while UAC Property share price declined 13.01%. This is partly due to the company’s loss of N2.9bn recorded in 2017, its second consecutive loss. 

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Outlook for real estate in June

The real estate sector is still feeling the pinch of high borrowing costs and dwindling consumer demand across board. With the 2019 general elections approaching and the impending assent of the 2018 budget by the President, we expect increased naira liquidity and consumer disposable income. 

Historically, election season is usually accompanied by increased infrastructural development as politicians aim to score political points and pump funds into the construction and real estate sectors alike. The sector is usually a popular option for politicians to channel excess funds and we expect this to reverse the 9 consecutive quarters of contraction witnessed in the sector.

 
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