Nigeria's economic recovery impact in 2018 influences retail and office market performance
Category Africa News
As Nigeria remains largely a commodity-based economy with oil being the country's biggest export, the performance of the retail and office sectors in Africa's biggest economy are still influenced by volatility in oil prices.
Amaka Ajaegbu, a Senior Research Analyst at Broll Property Intel Nigeria, reports that the retail and office sectors are slowly improving following the 2016 recession in Nigeria, which was caused by a plunge in oil prices.
Nigeria's economy bounced back last year with GDP growth of almost 2%. This was its fastest growth rate since the recession, on the back of stronger oil prices in 2018. GDP growth in Nigeria, was however significantly below regional neighbours such as Kenya or Ethiopia.
According to Broll Property Intel's latest Retail and Office Market Viewpoint reports on Nigeria (Q4:2018), the office sector has seen increased activity, while the retail property market was "less challenging" last year compared to 2016 and 2017.
Broll Property Intel is the research division of leading independent Pan-African property services group, Broll. Ajaegbu is a contributor to the Retail and Office Market Viewpoint reports, which are produced quarterly.
"The volatility of the oil price continues to be a challenge for Nigeria's sustainable long-term growth. Nigeria's government depends on oil revenues for state spending and to boost forex reserves. With government spending being a key driver of growth, a stable oil price above US$60/barrel is important," she notes.
"Nigeria's economy performed better in 2018 than 2017, following the recession in 2016. The way the Nigerian economy is structured around oil, any shock to the market will impact government spending and in turn general market activities. If oil goes below US$60, Nigeria's economic growth prospects could be at risk in 2019 as the Budget is pegged at an oil benchmark rate of US$60/barrel," adds Ajaegbu.
She explains that things should continue to improve for the retail and office property sectors in Nigeria, as long as oil trades above US$60 a barrel.
Quoting the latest Broll reports, Ajaegbu says: "The level of enquiries for office space increased in 2018 with a more diverse profile of tenants in the tech, finance, oil and gas, FMCG, aviation and pharmaceutical industries. In the quarter under review, occupiers with longer term horizons continued to enhance their presence in the market with a number of signed leases being for more than 1,000m², which deviates from the trend for smaller sized office transactions in previous years."
She notes that irrespective of the 2019 presidential elections in February, investors were still taking up office space in the last quarter of 2018 especially in the prime commercial district of Ikoyi in Lagos, where approximately 14,500m² of A-grade space was taken-up. She says this shows less risk aversion compared to the previous elections in 2015.
Ajaegbu says that last year landlords were increasingly sensitive to the existing oversupply of stock in the market. As such strategic leasing options had to be devised to attract tenants to buildings. However, she notes that vacancy rates in A-grade office buildings have come down in the core office nodes in Lagos, Nigeria's largest city.
An emerging trend in Nigeria's office market is the increased number of tenants looking at flexible or serviced offices, especially small-scale new entrants seeking flexibility to either expand or exit the market as and when required.
With regards to the retail market, Ajaegbu notes that while 2018 was a challenging year, it was still better than 2017 and 2016. Purchasing power remained generally stagnant together with sluggish consumer confidence, which affected retail sales.
"In this context, many landlords in the Nigerian retail market have been more open to tenant-friendly leasing options in an attempt to drive occupancy levels. On a positive note, international interest in the Nigerian retail market has not waned, but these brands are mostly interested in franchise agreements with experienced local operators. A number of international brands such as Pinkberry, Krispy Kreme and Pizza Hut entered the market in 2018," she says.
Ajaegbu notes that towards the end of the year enquiries for formal retail space increased, notably in the Fashion and Accessories as well as Food and Beverage (F&B) categories. F&B also recorded the highest level of concluded transactions during the year.
>> She concludes: "The 2018 year also saw the trend of shorter lease terms for retailers in certain malls in both the core and secondary markets of Nigeria. Retailers seemed to be interested in a test run of the mall model before considering a longer-term commitment." Ajaegbu also touched on the existence of hybrid Naira/ US dollar leases in certain formal retail locations, "acting as an additional incentive for retailers."
Click here to download the latest Broll Nigeria Reports
Author: Broll Property Intel