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Broll Property Intel's latest reports grant an insider glance at the performance of Nigeria's retail and property markets throughout last year. The two reports discuss the state of the Nigerian economy in 2019, before unpacking how the office and retail property markets performed through the period.
The Broll reports reveal that, despite tough economic challenges both abroad and domestic, the Nigerian economy was able to maintain moderate growth throughout 2019. GDP growth in Q3 was 2.3%, markedly better than the 1.8% achieved in Q3 of 2018. This was as a result of large contributions from non-oil sectors such as information communication technologies (ICT) and transport. More improved manufacturing and construction activities lead to noteworthy improvements for the industrial sector. This being a reversal of the manufacturing sector's negative growth recorded in previous quarters.
Brent crude prices were, according to the latest Broll Property Intel reports, 20% higher on average at the end of 2019 compared to the start of the year. This was largely due to challenges in curtailing supply, because of the US ramping up production, as well as the H2:2019 attack on Saudi Arabia oil fields which pushed prices up. Nigeria's foreign exchange market took a hit in 2019, with forex reserves closing Q4 at US$38.6 billion (a 10.4% decrease since the start of the year). The naira closed 2019 at ₦307/US$, and at ₦362/US$ on the parallel market.
Policy, reserve depletion and a sluggish growth trend battered the Nigerian Stock Exchange in 2019. The Broll reports explain that movements in the market were largely due to earnings reports by some of the largest listed companies. The All Share Index closed H2:2019 at 26,842.07 points, 13.6% lower than the opening figure in 2019. Headline inflation grew in the second half of 2019, with December 2019's rate of 11.98% being the fourth consecutive month of increase and 0.54% higher than the closing rate of 11.44% recorded in December 2018.
Looking at Nigeria's retail property market, the latest Broll Property Intel research reports suggest that demand was strong for retail spaces in 2019. Enquiries for space in malls that were already at near capacity decreased, however some retailers locked in last-minute leases to capitalise on the 2019 festive season. Other contributors to the take-up were retailers in the specialty, furniture and fashion industries. Expansions to other mall locations were noted, largely driven by local retail operations. While international retailers were reluctant to roll out operations in Nigeria on their own balance sheet, a few international brands made their way into the market. These included Dodo Pizza, a Russian food outlet chain, and Swarovski.
Supply in the market was boosted with opening of the landmark Retail Boulevard, coming in at roughly 8,000 square metres of retail space. Other noteworthy shopping mall launches included the Osogbo Mall in Osun and the Simbiat Mall in Lagos (both approximately 5,000 square metres). More favourable leasing terms in malls that have struggled to lease space contributed to a decline in Nigerian retail market vacancy rates to 16.7% in the core and secondary markets. Concessions were granted to tenants on a case-by-case basis, and included the offering of discounts on rental arrears and flat-lining escalations.
The Broll reports reveal that rent remained flat in 2019. Landlords are reluctant to revise rental rates upwards given the current devaluation risks, rising inflation, policy gaps and sluggish overall economic growth. The majority of landlords in the formal retail space are unwilling to de-dollarize rents, continuing to quote rentals in dollars which are payable in Naira at pre-approved exchange rates. However, landlords in some secondary market locations (where the majority of retailers are Nigerian) are starting to offer rentals in Naira. The net average asking rent in core retail locations ranges from 40 to 75 US$/m²/month, while rentals in secondary locations come in at between 15 and 25 US$/m²/month. Risks facing the Nigerian retail industry include rising inflation, due to its impact on the value of earnings, as well as rumours of an impending devaluation of the currency.
According to the Broll Property Intel reports, 2019 recorded the largest Nigerian A-grade office property market take-up in the last 5 years (of about 20,100 square metres). 20% of this accounted for existing tenants who expanded within their current buildings, while the bulk of transactions were driven by tenants from the tech, oil, and gas industries. Transactions in 2019 ranged in terms of space, from small 250 square metre units through to large spaces in excess of 2,000 square metres. The second half of 2019 saw the largest office market transaction occur in the sale of the Cornerstone Tower Development (GLA of 12,040 square metres) on Victoria Island, Lagos.
The latest Broll reports reveal that approximately 45,000 square metres of A-grade office space was delivered in H1:2019. Vacancy rates have declined on average following take-up in new buildings, with Ikoyi sitting at a vacancy rate of 25%, and Victoria Island unchanged at an average of 57%. The Office market pipeline of projects is approximately 130,000 square metres, including developments like the Trinity Tower and the Famfa Oil Tower. While there may have been a notable decline in the total vacancy within A-grade office facilities, landlords maintain that it is still a tenant's market.
Rents have remained generally unchanged over the past year, however Broll's recategorisation of A-grade buildings in Victoria Island lead to some older buildings being downgraded. For this reason, rents appear to be higher in the hub. This is due to the older buildings, having lower asking rents, being removed from the sample to avoid biased average rental calculations downwards. Rent in Ikoyi has remained steady at an asking price of US$700/m²/annum, while average rents in Victoria Island are US$698/m²/annum.
Market experts predict that with no significant upward movement in the level of enquiries, demand for retail and office properties won't likely increase in the near future. Supply will only see small deliveries in the short term, however an injection of space is predicted for the next eight to 24 months. Due to uncertainty around the health of the Nigerian economy, and thus the country's real estate market, many landlords do not foresee rents growing in the near term.
Visit www.broll.com/publications to download the full report.