Northcourt releases the H1'2021 Nigeria Real Estate Market Review


Tuesday, October 05, 2021 / 04:30PM / Northcourt / Header Image Credit: Northcourt 



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Executive Summary

The announcement of a COVID-19 vaccine in December 2020 began the respite that the world needed. The changes to much of society had been several and simultaneous. Oil prices recovered more than was anticipated, due in part to conflict in the Middle East. Stripe acquired payments startup - Paystack for over $200M. Avenir Growth Capital and Tiger Global led a $170M fundraise (on a $1Bn valuation) for Flutterwave, suggesting a willingness to invest in Nigeria. The Federal government welcomed Evercare's $1Bn Emerging Market Fund as Purple and Agility continued their investments in Nigeria's mixed-use and industrial submarkets, respectively.


The country took one quarter to exit recessionary waters, growing by 0.11% in Q4 2020, good news but for the persistent rise in inflation which posted 17.75% in June.

This report will attempt to show why prices did not plummet in some key locations and why leading investors have pressed on. The CDC Group plans a $1Bn infrastructure investment in Africa that will focus on Ethiopia, Kenya and Nigeria. Investors shopping for supernormal yields in emerging markets have shown more interest in development opportunities.


RCA's Global Commercial Property Price Index grew by 3.1% in 2020, down from 5% growth at the end of 2019. Grade A office vacancy rates have increased and only a few pipeline projects have seen significant progress. The home office has continued to grow, taking up the demand for office consumables with it. This has further increased the demand for 4 bed and 5-bed apartments as the future of work is likely to be a hybrid of home and office arrangements at least until Q1 of 2022. Some argue however that the weekday is now skewed, Office to WFH, 4 to 1 or 3 to 2.

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Lease prices for residential assets in high-end locations have continued to moderate, reflecting more prevalent economic conditions - except for gated communities where rents have gone up. Sale prices however appear rather rigid. The residential development pipeline remains robust, albeit more tailored to consumer requirements. Vacancy rates in Lagos, Abuja and Port Harcourt averaged 5%, 8% and 5% respectively for the first half of 2021.


Q1 2021 saw a rise in the use of residences and retail centres as places of worship (Nigeria is 99.4% religious). Developers are now more attuned to demand, drawing on lessons learnt from the end of 2020. Absorption rates tend to be higher when project pricing meets market readiness. This has led to the siting of new projects away from CBDs to other relatively commercial but accessible nodes. Healthcare developments have progressed at a steady pace, although they remain small to mid-sized. The CBN awarded N254M to 5 researchers under its Healthcare Sector Research and Development Intervention Scheme.


Major Chinese infrastructure investments in 2020 included railway construction ($990M) and shipping communications/logistics ($220M). The Federal Government approved $1.5Bn to rehabilitate the Port Harcourt refinery. Demand for luxury residential real estate has proved largely impervious to the downturn. 4 bedroom apartments at the luxury apartment block - No 4 Bourdillon, Ikoyi closed at $2.2M per unit on average.


Building on the uptick in online shopping, global retail sales are projected to grow from $3.35Trn in 2019 to $6.3Trn by 2024. Hospitality's recovery may be quicker than expected as named brand hotels report a slight recovery in occupancy rates and event bookings. Air travel numbers are also on the way up. The NCAA approved operations at the Bayelsa International Airport.


Research from Mastercard indicates that global consumers increased online spending by $900Bn in 2020, driven by lockdown measures and the closure of several brick-and-mortar stores. This report considers emerging arguments for the use of retail centres for e-sports, justified in part by two indicators: global revenues from the gaming industry is now head and shoulders above music and movies combined. For context, the first prize for the 2019 FIFA eWorld Cup was N100M. Global revenue from the gaming industry was $162Bn in 2020 - larger than Box office and streamed music

revenues combined (although Box office receipts were significantly reduced by movement restrictions). EPIC games, developers of Fortnite paid $95M for a 91,000sqm retail mall for conversion to their headquarters by 2024.

The Nigeria gaming industry has grown from N720M in 2016 to N3Bn by the end of 2020 and gaming tournaments are now a contributor to the demand for space. Nigeria's population is the youngest in Africa, averaging 18.5 years and growing at 2.6% per annum; this puts Nigeria in a unique position to explore the emerging opportunities. With 17,000 outlets worldwide, Burger King will be attempting to decode Nigeria's fast food delivery market for a specific product. Domino's Pizza, Krispy Kreme, Debonairs Pizza, KFC have shown that this is quite possible. The Eko Atlantic project will be advancing to phase 3 as Purple Group progresses on its mixed-use development.

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The 2,000ha Alaro city also received investment from the Nigerian Content Development Monitoring Board's (NCDMB) SPV - Rungas Alfa FZE, which will be developing an 800,000 Type 3 Composite Cylinders manufacturing plant.


A Federal High Court struck out the motion filed by ESVARBON (Estate Surveyors and Valuers Registration Board of Nigeria) and NIESV (the Nigeria Institute of Estate Surveyors and Valuers) disputing the rights of the Lagos State Government to regulate real estate transactions within the State.


Lagos has also brought down the costs and waiting times for construction permits, strengthening the contract dispute resolution system. A High Court in Akwa Ibom state nullified a native law excluding women from inheriting property as the Abia State House of Assembly also passed the Office of the Surveyor-General Bill into Law. Residential landlords increased rents for tenancies requiring renewal in the first quarter of the year. And while the Lagos state government appealed for moderation, this increase will likely continue.


The demand for creatively designed 4 and 5 Bed apartments has continued to impress. This has contributed to an increased allocation in upcoming gated community projects. Demand for residential apartments with more than 3rooms in secure locations is expected to continue for the rest of the year. Security will weigh heavily in the occupier commitment. Local funding for mixed-use and small to midsized residential and healthcare developments, logistics and mid-market retail (including ecommerce) is now more available. We find that the mixed-use development does not fit all circumstances.


Easing lockdown restrictions, the increased administration of the vaccines and the gradual return to business travel are projected to support Hospitality's growth. Estimates suggest that $1 invested in business travel yields $5 in incremental revenue. The Dangote Group completed the 43km Obajana-Kabba rigid pavement road located in Kogi state. With $1.1Bn, Heirs Holdings acquired Oil Mining License 17 from Shell, ENI and Total to increase the local content in Nigeria's energy markets. Evercare's $1Bn healthcare fund is expected to contribute to the conversation around Nigeria's healthcare sector.


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