Development activity across the commercial real estate sector in Lagos increased by 19% in 2021 compared to 2020 in a return to market activity in the city's construction industry, according to the latest analysis by leading real estate data company, Estate Intel.
Dolapo Omidire - CEO, Estate Intel, explained, "2021 marked an important shift in the development cycle across the commercial real estate sector in Lagos buoyed in part by increasing investor interest in key sectors such as offices, residential and healthcare. While absorption levels remain low in sectors such as prime offices which recorded vacancy levels ranging between 12% and 36% for Grade A and B offices, developers remain bullish on the market with over 600,000 square meters of space under development."
According to the report, key sectors such as the residential and healthcare sectors remain undersupplied pointing to an exciting opportunity for investors. With both sectors recording under 2.5% of the total stock point across the market, the outlook remains positive for the foreseeable future.
Overall, outlook on the alternative real estate sectors - which include data centers, healthcare, and student accommodation - in Lagos remains optimistic with Estate Intel revealing that over 10% of projects of the development pipeline in the next 5 years falls within this category. This share is expected to increase as these sectors gain traction due to their strong income profile making them attractive to investors.
On the other hand, while the retail sector recorded the largest share of the development pipeline relative to existing stock (60%), activity in the sector is likely to remain subdued. Vacancy levels are expected to remain high, largely underpinned by poor access to the crucial foreign exchange required for imports, a depreciating currency, and increasingly unaffordable rents.
"The momentum that began building at the end of 2020, was sustained throughout the year with a slow and steady return to construction and real estate activity. However, currency challenges and longer-term trends such as the sustained oversupply in the retail and office sectors are likely to tip the scale upon completion of some of the projects that we await in 2022 ultimately impacting on occupancy levels and achievable rents." Dolapo explained.
"However, with the economy revving back up, it will no doubt impact on the occupier and buyers purchasing power presenting pockets of opportunity for some of the sub sectors that meet the delicate balance between price and quality such as the mid-tier residential sector, neighborhood malls as well as flexible offices." Dolapo concluded