Overview: Here’s what’s in store for the Lagos office sector
Key highlights
Lagos office market reflects mixed performance with varying levels of occupancy across different grades.
Demand mainly focused on smaller-sized offices estimated between 100 m2 and 300 m2 with flexible lease terms and a great location.
Despite high occupancies, rents have remained subdued, and the market is likely to remain tenant-led with the growing development pipeline resulting in supply outweighing demand.
The Office sector in Lagos has continued to reflect mixed performance. On one hand, the rise of hybrid working has resulted in a shift of occupier preferences with current occupier demand remaining within the premise of either flexibility, quality or affordability.
As such, demand has mainly focused on smaller-sized offices estimated at between 100 m2 and 300 m2 with flexible lease terms and a great location.
Interestingly, the Lagos office market exhibits varying levels of occupancy across different grades. The Grade B+ segment appears to have the highest occupancy level at 78.36%, while the Grade A and B segments have 71.35% and 75.35% occupancy levels respectively.
However, the Grade A+ office market currently has an occupancy level of 54% and this is due to the recent completion of Famfa Oil Tower, which added 18,500 m2 of leasable space into the market.
On the other hand, the market remains tenant-led. Despite relatively high occupancies recorded, rents have remained subdued. For example, average 5-year rents in areas such as Victoria Island declined by 9.6% in 2022.
We believe this mixed performance is likely to continue being reflected throughout this year. For example, within Lekki Phase 1, there is a growing pipeline of properties that seek to raise the bar for what is regarded as prime in the region. A few examples include The Beacon and Mansfield Office. Unfortunately, it remains difficult for office buildings there to break the N100k
average annual rental ceiling, as similarly priced B or C Grade alternatives in Victoria Island and Lekki Phase 1 respectively, still have excess amounts of vacant space
However, we remain optimistic about performance in markets where there is a limited new supply, including Ikeja GRA and Lagos Island, which should soon begin to benefit from the Blue Line Train.
As such, A+ and B-grade buildings are attracting the highest occupancies in the market at approximately 90% and 91%. Grade A buildings that often have higher rents and less superior features compared to A+ buildings have attracted lower occupancies at approximately 77%.
Notably, the Lagos office market has recorded significant investor interest that has seen a total stock increase by 3.5% to 1.3M sqm in 2022 with significant completions such as Famfa Oil Towers.
Overall, the market remains tenant-led with average 5-year rents in areas such as Victoria Island declining by 9.6% in 2022. We believe this trend is likely to be reflected in the first half of the year due to election-related uncertainty as well as macroeconomic uncertainty.
While business activities in the professional services sector, non-banking financial services as well the technology sector are expected to pick up after the election potentially resulting in some market bright spots, the growing development pipeline estimated at 213,758 sqm, is likely to result in supply outweighing demand resulting in a subdued market.
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Full Story: https://nairametrics.com/2023/04/21/overview-heres-whats-in-store-for-the-lagos-office-sector/
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