Commercial development activity in Lagos State declined by 11 percent year-on-year (YoY) in 2023 due to Nigeria’s economic challenges underpinned by record-high inflation, and a weakening currency, near report has revealed.
This aligns with analysts’ view that the macroeconomic climate is difficult to ignore as it has particularly subdued construction activity across board with developers and investors opting for a cautious approach in general.
There are, however, bright spots in the hospitality and industrial sectors. As stated in the report, Data Centres is an exciting sector to consider as investments are expected to drive supply to 200MW by 2025.
The report titled 2024 Lagos Real Estate Development Pipeline Report was compiled by Estate Intel. It notes that the office sector recorded a slight increase in its development pipeline at 16.25percent of total stock compared to 14 percent in 2022.
Estate Intel is an African real estate market intelligence platform whose goal is to become the starting point for the best African real estate decisions. The online platform provides superior intelligence using Africa’s largest database of historic property prices, vacancy rates, transactions, and project team data to help institutional investors, governments, and individuals execute property investments with conviction.
The report says that 13 percent of the projects pipeline is nearing completion and it is expected that their delivery will impact occupancy, particularly in the prime real estate segment of the market with key nodes like Ikoyi and Victoria Island expecting 75 percent of the supply by 2025.
Dapo Runsewe, Senior Analyst at Estate Intel notes that, “the Lagos office market is fully bracing macroeconomic headwinds as rents have been subdued amid concessions to maintain occupancies.
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However, as companies opt to downsize or exit the market altogether, occupancy rates are being impacted. Notably, Microsoft and Meta, occupiers of Kings Tower recently opted to reduce their occupied space as they downsized their country operations.“
On the other hand, the retail sector continues to be subdued with the bulk of development activity driven by hypermarkets and neighborhood supermarkets. As a result, the larger retail developments make up 70 percent of the pipeline, which is currently on hold. Interestingly, the 30,000-square metre Orca Mall is the only project in active construction over 10,000 square metres and the first project of that size to be undertaken in two years.
“As macro conditions continue to erode consumer’s purchasing power, formal retail malls have stayed resilient and maintained healthy occupancy rates at an average of 86 percent as at Q1:2024. However, we’re seeing increasingly reduced footfalls in the malls outside of the festive season,“ Runsewe said.
The hospitality sector, on its part, remains the best-performing sector of 2023 with a 35-percent increase in Average Daily Rate (ADR) compared to 2022. While the pipeline grew to 38 percent of total stock, the sector’s outlook stays positive as the limited imminent supply creates a balanced market.
Trevor Ward from W Hospitality noted that, “the recovery and resilience of the Lagos hotel market is remarkable, explaining that it has outperformed most of the other cities globally, in terms of demand and pricing. By the end of 2022, both ADR and RevPAR had surpassed pre-pandemic market performance.
Increased demand and very little additional supply have resulted in pricing power on behalf of hotel managers, with no great resistance from the market, as increasing prices across board are a fact of life. 2023 ADR was about 35 percent above the 2022 figure, well above inflation; at 2019 values the 2023 ADR is approximately 8 percent higher than that achieved in 2019.
Besides Data Centres which have continued to register the highest level of interest from investors, the industrial sector is one to be optimistic about as domestic demand continues to drive transaction activity amid recent exits by multinational companies,
The residential sector, particularly the low to middle segment, have also continued to exhibit unparalleled demand as the existing pipeline, estimated at 33,000 units, falls short of Lagos’ housing deficit estimated at 2.3 million units. Government undertakes mass housing projects to address this.
