From smaller housing units to mixed-use developments, student accommodation, hospitality, warehousing and office developments, real estate analysts foresee opportunities for investors in 2020. Dayo Ayeyemi reports
igeria’s real estate sector has witnessed some hiccups in the last three years due to instability from economic recession and unstable policies of government.
What investors are focusing on currently is investment opportunities year 2020 holds for them.
Based on the expectations, Northcourt Real Estate Group, at breakfast meeting in Lagos, released the “2020 Outlook of the Real Estate Market,” forecasting opportunities in different segments of the industry.
Led by its Chief Executive Officer, Tayo Odunsi, analysts are foreseeing opportunities in development of residential property such as smaller housing units, mixed-use developments and student accommodation.
From the third quarter of 2019, the analysts noted that smaller apartments such as one-bed and two-bed flats had continued to experience price increase due to huge demand.
For this reason, they pointed out that real estate developers and service providers had consistently focused on products and services more in tune with effective demand.
“Student housing remains a sparsely tapped,” they noted.
To take advantage of demand for one-bed apartments in Lagos, especially in the Lekki Phase 1 and Victoria Island areas, they explained that landlords had started remodeling their larger houses, usually with four rooms and above, and leasing them out as studios and one bedroom apartments.
According to them, affordable housing, student accommodation and rent-to-buy schemes with flexible payment terms are equally on demand as consumers navigate the challenging economy.
They said: “To expatriate, co-living, an arrangement where tenants stay in multi-room apartments (some of which not originally built as such) are here to stay.
“They make economic sense and meet the prestige and convenient needs of tenants. Landlords maximise rent collection. Co-living is growing quickly in part because developers are yet to fully respond to the demand for studios, one and two bedrooms.”
Currently, they stated that Lekki Phase 1 had a concentration of both residential, office and retail markets, adding that its residential market accounted for 53 per cent of the uses in the entire market.
On the opportunities in office accommodation, Odunsi predicted improved occupancy rates, increased migration of tenants to new Grade A office buildings, and improved awareness on sustainability and energy efficiency.
He urged would- be investors in the retail segment to focus on family entertainment features, foreseeing more players, especially local and international brands in the sub-sector.
On industrial, analysts said there would be increasing demand for warehousing and logistics facilities.
“There will be introduction of Grade A feature,” they said.
In the hospitality sub-sector, they also predicted openings of new branded and boutique hotels, adding that room rates would increase.
According to them, the hospitality market is expected to grow by five per cent year on year (YoY), noting that Nigeria had the second largest hotel pipelines in Africa after Egypt with 7,940 rooms in 2019.
The analysts observed that the pipeline in Nigeria had fallen by 17 per cent compared to YoY due to a cleaning out of 11 deals comprising 2,100 rooms, and a reduction in activities as the economy is yet to fully recover.
According to them, “there are 49 hotel projects in Nigeria’s pipeline, 25 of which have stalled.
“Lagos home owners are providing Airbnb rentals to fill the gap. The state is among the eight fastest growing Airbnb market in the World. Increasing the supply of short-term travel accommodation is solving a pressing economic problem.”
Analysts listed institutional perspectives on third-world hotel investments and difficulty in debt management as major challenges to the development of the sector.
In terms of room revenue, they said that Nigeria was expected to be the fastest growing hotel market in Africa in the next five years.
“Tsogo Sun Hotels group plans to apply cash resources generated during its initial 15 months post the listing towards settling its $85million offshore debt related to acquisitions in the UK, Nigeria and Mozambique, “ they said, adding that increased conversions from residential to hospitality had been projected to increase in Port Harcourt .
“Areas like Elenlewo, Mile 1 and Mile 3 will see increased demand from low-mid income individuals looking to live close to their places of work. A popular hotel in the Patrick Yakowa area of Abuja was converted to 90 units of one bedroom /studio apartments and filled up shortly after completion,” they added.
Introduction of some regulations in the market could pose a serious challenge.
They also noted that absence of social or affordable housing policy to support its emergence as additional setback.
In the office sub-sector, they stated that Grade B and C offices would lose tenants relocating to A-grade, noting that co-working and conversions would continue to steal market-share.
In the retail segment, the analysts said: “Few malls are getting tired and need to renew novelty value to keep up.”
They pointed out that proliferation of malls would lead to apathy in some locations.
In the industrial real estate, the Northcourt boss noted that international entrants were self-building and that local developers lacked expertise on contemporary industrial space development and management.
He stated that the hospitality industry was too susceptible to economic and environmental shocks.
The analysts listed political, economic, social, technology and environment factors that could impact the real estate sector in the year.
He pointed out that reduced political spending through the watchmen, such as Economic and Financial Crimes Commission (EFCC), TSA, N100million threshold, Federal Inland Revenue Service (FIRS) could impact real estate sector in 2020.
Others include the 20 per cent reduction in budget for housing capital expenditure and directing exchange rate policy.
Economic impact, analysts said, could impact in form of low, but improving purchasing power; demand for indirect commercial real estate; improved construction activities, resulting to higher construction costs; and access to finance (mortgages & construction finance).
On technology and environment, they pointed out that sustainability requirements were on the rise, leading to adoption of technology in construction, real estate management and brokerage.
The Northcourt analysts noted that the real estate landscape in Nigeria was physically growing, pointing out that five large scale new city projects are currently underway.
“This is not considering the numerous smaller private estates on display in most states of the country,”they said.
According to them, some of the new cities include Alaro City, Eko Atlantic City and Orange Island, adding that across the country, new cities would cover 25 million square metres (sqm) of land when completed.
“These new towns are poised to benefit the government, private businesses and players in the built environment who stand to profit from the city construction boom – taxes, better workspaces and eco-friendly developments to mention a few advantages,” analysts said.
They argued that construction activities remained one of the highest employers of labour and critical to the economic development of countries, saying it contributed 13 per cent to global gross domestic product.
“In Nigeria, though growing construction only contributes five per cent to GDP industry, but incumbents, new entrants, and investors alike are realising the potential of technology to accelerate projects, reduce costs, and improve safety in construction,” they said.
However, they pointed out that fraud and lack of transparency had continued to stunt growth of the sector.
To curb this, analysts noted that the Lagos State Government had launched a real estate transactions portal to reduce fraudulent practices in the real estate business.
This initiative is expected to stall the activities of insincere landlords, developers, as well as dishonest buyers and renters too by ensuring all parties are registered before they can transact.
Real estate landscape in Nigeria is physically growing and this calls for strict monitoring of activities and regulations.