Faced with a sharp fall in purchasing power, real estate developers in the country are having to look for innovative ways to keep their houses occupied. Despite a housing deficit now estimated to be in excess of 20 million, many Nigerians are not in position to buy into the new houses being developed in many parts of the country due a sharp decline in the purchasing power of the middle class even as many seek greener pastures outside the country. Nigeria is currently estimated to be losing about 12 doctors every week to Europe and America even as other professional also flee the country.
Not surprising vacancy rates in highbrow areas of Lagos and Abuja are in excess of 40 percent for both commercial and non-commercial properties leaving many developers struggling to offload new developments into the hands of consumers who are not in a position to buy. Even though developers insist that the wide housing gap offers opportunities for developers to sell their property if the pricing is right.
“These opportunities are not for those we call ‘unmotivated sellers’ who cling to old prices and are not ready to make the shift,” explained Udo Okonjo, the chair/CEO, Fine and Country West Africa, who also pointed out that even in the highbrow locations like Ikoyi in Lagos where residential vacancy rate is over 40 percent, demand is still strong for apartments when the price and size are right.
Players in the industry says that the new reality of the market is that developers are experiencing over supply in high end residential buildings and also in A-grade commercial office space but under supply in the low end of the residential market where demand is weak.
As a way out of the over-supply, under-supply challenge, some developers are ‘redeveloping’ into smaller units of two-bedroom and studio apartments for the short-let market. In the case of office space, smaller spaces are now being offered for co-working stations.
Players in the industry have told BusinessDay that short-let apartments are now gaining momentum due to the challenging economic environment.
“This increased demand has spurred savvy business operators to accelerate their expansion plans, seeking out strategically located residential buildings or vacant apartments in prime areas to be converted into short-let apartments to meet the flexible needs of people who require such accommodation,” explained Tayo Odunsi, CEO, Northcourt Real Estate.
Besides security issues and the strong desire by young professionals who want to live in exclusive locations to have a feel of luxury living, Erejuwa Gbadebo, CEO, International Real Estate Partners (IREP), notes an upsurge in demand by corporates who would rather pay for short-let apartments for their expatriate staff, who may be in the country for short periods of time.
In line with the increased demand, short-let apartments are now popular in places like Ikeja GRA, Victoria Island, Ikoyi, Osborne Foreshore, Lekki, Festac Town, all in Lagos. In Abuja, they could be found in such expensive locations as Maitama, Asokoro, Wuse, while in Port Harcourt they are found in Old GRA and Trans-Amadi.
“These are locations where house prices are quite high and the young professionals who cannot afford such prices still want to have a feel of such locations go for short-let apartments,” explained Azubuike Unigwe, Managing Partner, Unigwe and Co, a firm of estate surveyors and valuers.
Most expatriates, top executives and consultants to blue chip companies who wish to stay in town for a week or more, prefer these serviced apartments because of the comfortable ambience which most hotels lack. These apartments also offer some level of privacy which some hotel brands don’t give.
Analysts point out that another reason for the growth of shot-let market is the flexibility enjoyed by guests when compared to hotel rooms, explaining that it accommodates client’s guests, relatives, friends which are not allowed in some hotel rooms.
Another major reason is the affordability. BusinessDay checks reveal that short-let apartments are cheaper compared to hotel room rates. A two-bedroom serviced apartment in 1004 Estate in Victoria Island, Lagos costs N35,000 per night on short-let, while a standard hotel room costs an average of N60,000 per night within the same neighbourhood. A two-bedroom apartment at the estate sells for N45 million to N50 million.
In Festac Town where UPDC offers serviced short-let apartments at its The Residences, a two-bedroom apartment sells for N65 million, but the short-let goes for N30,000 to N40,000 per night. Golden Tulip Hotel, in the same ‘compound’ with The Residences charges between N50,000 and N60,000 per night.
In Ikoyi, a two-bedroom apartment lets for average of N50,000 per night, while at Parkview estate, Ikoyi it costs an average of N40,000 for same size apartment with clients expected to pay a minimum of one-week duration. This is a location where the minimum rent for a three-bedroom apartment is between N20 million and N25 million per annum.
In the commercial segment of the market, developers are a lot more innovative and creative. This is one segment of the market where vacancy rate has gone up significantly because some corporate tenants have changed office location. Some that were in two to three floors have now scaled down to one floor because they have sent away a good number of their staff due to reduced business activities.
For retail, some retailers have had to move out of the malls completely. Some landlords have reduced rents. There are cases where landlords have asked tenants to stop paying rents altogether, but to just pay the service charge to enable them maintain the mall.
Gbenga Olaniyan, CEO, Estate Links, confirmed BusinessDay that some A-grade office buildings now offer smaller spaces like 200-500 square metres where a minimum of 1000 square metres were on offer before now, stressing that this was the only way to attract more tenants to such buildings and to increase occupancy level.
Tenants are also offered concessions in form of quarterly instead of yearly rents payment; reduced service charge, energy efficiency and reduced cost; and product differentiation aimed at attracting more tenants and increasing workers’ convenience and productivity in the building.