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Northcourt's 2021 Nigeria Real Estate Market Outlook

Property & Real Estate	4510 VIEWS
Property & Real Estate
4510 VIEWS

Monday, January 11, 2021 / 06:00PM / Northcourt / Header Image Credit: Northcourt

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Summary - World at Home

2020 will be described as the year of unprecedented shifts and shocks. COVID-19 effects were evident in the economy and real estate markets world over. Crude oil prices hovered around $42p and employment numbers weakened. And while new business opportunities opened up, few firms are likely to return to the organisational structures of 2019.

For a frontier market dependent on oil revenues, this formed an unwieldy canvass for much of the year. The $30Trn global commercial-property market was tested once more as occupiers required less space understanding that WFH may become the norm.

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The nation moved from 6th to 3rd in 2019 on Absa's Financial Markets 2020 Index. One commonality across all funding reports is the rise and domination of Nigeria as an investment destination. Nigeria is the leading destination for startup venture capital investment on the continent. But the currency remains a sore point and manoeuvrings by the CBN, while well-meaning has done little to stem its.

Police brutality against Nigeria's young demographic vaulted the country to the international stage as the government sought to recover from poorly handling peaceful protests. This brought to the fore recurring issues in government transparency. The youth would return to making the most of the Nigeria economy, contributing to much of the businesses online. Transactions value increased from $77Bn in Q2 to $116Bn in Q3 2020.

Big brand hospitality chains saw bookings drop by over 94% and are unlikely to see pre-COVID levels until Q3 2021 at the earliest. There has been no demand for student housing, a result of the universities' strike over funding agreements with the central government. It is hoped that the armistice between the regulators and the lecturers will be more permanent than in previous seasons. Central business districts are no longer the undisputed destination for new developments. Some suburbs are now under strong consideration as developers are choosing, as they did in the 2018 recession, to make more research driven decisions. Both retail and office landlords are changing to remain attractive. Real estate investment managers are embracing technology more intently to accurately forecast performance metrics.

In the latest global report on media cities by Savills, Lagos comes in at 20th being the centre of Nigeria's media industry and gaining popularity both through the Nigerian diaspora and streaming services. Nigeria's film industry has made much of the government funding it's received in recent years and is a key employer in the Nigerian economy.

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Rack Centre will be expanding its data centre with a $100M investment, creating a total net lettable space of 6,000sqm. Hyprop reached an agreement with an undisclosed buyer to sell its stake in the Ikeja City Mall for $115M, good news overshadowed only by the fact that it bought said stake for $155M in 2015. Enquiries for residential leases have been steady for much of the year, but more so for an extra room.

Tenants in 1-bed apartments are looking to add one more room and those in 2 beds are going for three - possibly to make room for WFH. Buyers appear more interested in 4 - b e d r o om apartments, especially in the city centres. Most prospects now prefer locations that are either in secure gated communities, a safe distance from the highways or both.

There is a general shift toward the local investor as a source of investment. Treasuries aren't offering attractive rates and well directed real estate investments are no longer as hard a sell. The demand for last mile industrial real estate is expected to grow, a result of the growth in online retail, logistics and pharma. Healthcare, neighbourhood retail and residental developments are posting respectable results, encouraged by the schisms in the global supply chain and the added motivations to look local first. But this forms something of a quandary for the execution of the recently ratified AFCFTA. As the vaccines course their way through some parts of the world in 2021, (Mrs Okonjo Iweala, the incoming WTO head has assured that Nigeria will receive the vaccine), the expectation is that the economy will improve.

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Demand for residential leases in secure gated communities will continue to grow along with locations a safe distance from major thoroughfares. The Grade office market will return much different than what it was before the pandemic - less occupied, not as pricey. We expect that data centres, cell towers, power cabins and the like will continue benefiting from the heightened use of technology. Single use developments have become a fading concept.

The projects that will weather the present, and increasingly, the future will be mixed-use, combining residential, retail, office, and healthcare. We suspect that the future of real estate investment management will parallel the evolution of financial services where transparent data platforms were created to support trading assets in capital markets.

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Gated Communities to witness increased demand in 2021

Further discourse around the Outlook Report was had on the 6th of January 2021 at the Wheatbaker hotel, Ikoyi Lagos during the Annual Nigeria Real Estate Market Outlook Breakfast meeting, which brings together industry leaders from diverse fields in the Nigeria real estate market to discuss investment opportunities for the new year ahead. The event

The Nigeria real estate market has had to switch gears. Whether it's the movement of demand away from Grade A office, retail and big brand hospitality to the adoption of technology. While pushing the conversation on healthcare, infrastructure, security and mortgages, more changes have been attempted (and actioned) over the last 10 months than in the last 3 years.

Within social distancing restrictions, the event was streamed live where 6 speakers were present. Sandra Momah, Associate Director, Ernst & Young, Tayo Odunsi CEO, Northcourt, Temitope Runsewe CEO, Dutum Construction, Funke Okubadejo Director, Actis and Ayo Ibaru COO, Northcourt who also moderated were available physically while Olaide Agboola, CEO Purple joined the panel online from the UK.

Ibaru kicked off the event with a technical presentation on the performance of Nigeria's real estate market in 2020 discussing the residential, retail, office, industrial and healthcare sub-markets. Highlighting the increase in investor demand for research, and the ongoing projects as a result, the presentation ended with 3 scenarios for 2021 (Economic recovery, No change and economic decline) and their effects on the real estate market.

Tope Runsewe, CEO Dutum Construction discussed the workings of Nigeria's construction industry from bidding, planning and team selection to executing and monitoring. He further shared his perspectives on the past and ongoing construction projects in their portfolio education, retail, hospitality, aviation, and infrastructure aspects of Nigeria's real estate market. Looking into 2021, he emphasised the following as key points - growth in the demand for quality delivery, rise in price of important materials (local suppliers, backward integration), a rise in the demand for indigenous construction firms and an improvement in local expert pool due to the return of indigenous experts

with international experience.

In panel session of real estate industry players, the panelists from their practice experience, gave perspectives and nuances resulting those perspectives to make projections for the new year, 2021 which include: the demand for residential real estate is expected to increase and gated communities will see more demand especially for 3 and 4 beds. Mixed use projects with well planned residential components are projected to deliver above average results. Grade A office vacancies are expected to increase and those with rentals above $350psm may find it difficult securing tenants. The pace of

conversions from residential to office will accelerate.

Industrial real estate is projected to grow based on sustained online retail and last mile delivery considerations. This is expected to drive infrastructure development. Hospitality's growth will depend on the release of a vaccine for Nigeria and the degree of innovation as pivoting to allied services. Land is expected to remain a resilient store of value and continue to attract investment.

For enquires and comments regarding the report, kindly contact Ayo Ibaru via ayo.ibaru@northcourtrealestate.com