Our latest Q3 2014 report on the Lagos Real Estate Investment market is now available.We hope that you find the report insightful and ask that you kindly forward it to any of your colleagues who have an interest in the African real estate markets.

1. Lagos Real Estate Investment Report
Q3 2014
MCO Real Estate Limited
5th Floor, Mulliner Towers
39 Alfred Rewane Road,
Ikoyi, Lagos, Nigeria.
Mob +234 (0)806 924 5688
Email: mokoye@mcorealestate.com
Web: www.mcorealestate.com

2. International perspective, local expertise
Lagos Real Estate Investment Report
Q3 2014
2
Copyright © MCO Real Estate, 2014. All rights reserved
Lagos, Nigeria Real Estate Investment Report
Q3: 2014
HIGHLIGHTS
Introduction:
The Lagos real estate market is evolving at a rapid pace with considerable interest from international developers and investors seeking exposure to African markets
Nigeria Economic Overview:
A stable economic third quarter. Inflation rising slightly as we prepare to enter an election year. Potential future shocks as oil drops below $100 per barrel.
Real Estate Overview:
 Land
Prime land prices are stable to rising. Victoria Island land prices benefiting from major development activity in the area
 Residential
Prime residential still suffering from over-supply. However there is increased activity in the middle and lower income housing market with great expectations from the NMRC
 Commercial Office
A strong supply pipeline is meeting strong demand as corporates seek to establish in the country. Quality is also improving
 Hospitality
High room rates and high occupancy leads to a vibrant hospitality market with new players seeking entry
Financing:
Local financing remains a challenge with a lack of bank incentivisation to lend to the real market leading to lending rates of circa 20%
1. INTRODUCTION
We introduce our Q3 Lagos Real Estate Investment Report analysing the vibrant Lagos Real Estate Market within the wider Nigerian macro-economic environment. Our report is investment driven and we hope it brings value to your investment making process as you seek to unearth value in the Lagos real estate market. August was a slow month partly due to the fall in activity over the summer holiday period but also unfortunately due to the breakout of the Ebola Virus Disease in the country. Nigeria has now been declared Ebola free and it is hoped that international investors that had put on hold their plans for investment in Lagos, will be lured back by the vibrancy of the market. Like any other emerging or frontier market, Nigeria is a long term play and subject to its fair share of short term challenges. The third quarter has taken off with considerable vigour especially across the retail, hotels and single family housing estate sub sectors. We hope you enjoy this report and that it assists your decision making process in relation to investment in Lagos within a wider Nigerian context. The market is vibrant and ever changing and requires an expert eye to get it right. MCO Real Estate is your trusted investment partner with a depth of expertise in the local market. If you find this report of value, we ask that you kindly forward it to your in-house real estate team or to any colleagues involved in the real estate investment market with a focus on Nigeria.
2. NIGERIA ECONOMIC OVERVIEW
Real GDP grew by 6.54 per cent in Q2, 2014 compared with 6.21 per cent in Q1 and 5.40 per cent in Q2 2013. The non-oil sector remained the main driver of growth recording 6.71 per cent in Q2 2014. However, this was lower than the 8.21 and 8.88 per cent recorded in Q1 2014 and the corresponding quarter of 2013, respectively. The fall in growth was attributed to the fall in agricultural output, construction, trade and services due to the ongoing unrest in the northern part of the country. Headline inflation rose to 8.5 per cent in August from 8.3 in July 2014 and 8.2 per cent in June 2014. Inflation rates although stable compared to the August 2013 rate of 8.2 per cent have actually risen from an inter-year low of 7.7 per cent recorded in February of 2014.

3. International perspective, local expertise
Lagos Real Estate Investment Report
Q3 2014
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Copyright © MCO Real Estate, 2014. All rights reserved
Activities in the capital market were bearish over the last
quarter with the All-Share Index (ASI) decreasing by 4.3
per cent from 42,482.48 on June 30, 2014 to 40,672.94 on
September 12, 2014. Market Capitalization (MC) also
decreased by 4.3 per cent from N14.03 trillion on June 30,
2014 to N13.43 trillion on September 12, 2014.
The oil price has fallen below US$100 per barrel for the
first time since 2012 and this does not bode well for the
wider economy. External reserves stand at US$39.5 billion
as at the end of September, 2014.
3. REAL ESTATE OVERVIEW
LAGOS REAL ESTATE MARKET OVERVIEW
The re-basing of Nigeria’s GDP leading to its identification as the largest economy in Africa has put Nigeria on the map as
the foremost investment destination for international capital seeking exposure to the African markets. This has led to
increased interest from international real estate developers seeking to gain an entry to the market. Market efficiency has
also improved. JLL the international property consultancy, in their recent Global Real Estate Transparency Index, identified
Nigeria as one of most improved markets across the globe for doing business with a particular mention of improvements in
the Lagos market.
Particular areas of interest remain residential and commercial office property with a strong pipeline of high quality Grade A
office space coming to the market over 2015-2016. Established international operators are also seeking to expand their
footprint in the hospitality and retail segments of the market. There is also renewed vibrancy in the lower to mid range
residential housing market brought about by efforts spearheaded by the government to remove regulatory and affordability
hurdles impeding residential housing supply growth.
Prime Rents US$ psqm per annum
Commercial Office (Class A) 1000
Retail (Enclosed Mall) 900
Residential (Apartment rent) 120,000
Prime commercial office rents stand at US$1,000
per square metre, prime retail rents stand at circa
US$900 per square metre while prime residential
apartment rents stand at US$120,000 per
apartment.
PRIME LAND PRICE MOVEMENTS
Notes
1. Data is offer prices rather than actual sale prices
2. Eko Atlantic prices are blended waterfront and non-waterfront prices
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
SEPT OCT NOV DEC JAN FEB MAR Apr May June July August
NGN Values / m2
Lagos Island Prime Land Prices (Sept 2013 - Aug 2014)
VI
EKO
ATLANTIC
IKOYI
BANANA
ISL
ONIRU
LEKKI 1
+7%
+22%
-1%
+22%
-5%
-3%

4. International perspective, local expertise
Lagos Real Estate Investment Report
Q3 2014
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Victoria Island at prices averaging N365,000 psqm (US$2,214 psqm) holds the title of most expensive land in Lagos based on its positioning as the central business district and its zoning designation for mixed commercial use of up to twenty floors. Ikoyi, Banana Island and Eko Atlantic City currently remain at parity within a range of N280,000 – N290,000 (US$1,690 – US$1,750 psqm). However, Banana Island and Eko Atlantic have shown strong price appreciation over the past year of circa 22% while the mature Ikoyi market has not shown any appreciation in value over the year. Lekki and Oniru are also priced within a similar range of N116,000 – N130,000 psqm (US$700 – 790 psqm) and both have show minimal price appreciation over the last year. THE RESIDENTIAL MARKET The prime residential apartment tower market with sale prices starting from N100m (US$600,000) continues to suffer from a supply overhang built up during the economic recession coupled with a withdrawal of traditional sources of demand in particular from the international oil companies who with a new focus on offshore assets have reduced staff numbers and housing requirements. At the opposite end of the market, the low to middle housing market has benefited from rising incomes and an increased ability of the low to middle class to afford to move from rented to owned occupation. The government is at last grappling with the country’s chronic housing shortage. The advent of the Nigerian Mortgage Refinance Corporation a partnership between the federal government and local financing institutions created as a buyer of mortgages on the secondary market once fully operational is expected to inject much needed liquidity into the mortgage market and potentially make mortgages and hence home ownership much more accessible to the mass market. In addition to this federal government / private sector driven initiative, both commercial and mortgage banks are now seeing the housing sector as offering consistent and repeatable investment returns. The time taken for housing developers to find off-takers and sell out schemes is shortening with a greater percentage of buyers able to access mortgages rather than the traditional means of paying the entire sales price within one year. It is hoped that with the introduction of the NMRC, institutional investors will also be drawn to the sector with the expectation that large scale development using new rapid build technology will help to lower the cost of housing in the country. THE COMMERCIAL OFFICE MARKET With the growing awareness of international corporates of the expanding opportunities for trade in Africa and Nigeria, there is increased interest once again for commercial office space in the commercial hubs of Victoria Island and Ikoyi. Vacancy rates are down, interest for grade A office space is up. There is also a strong supply pipeline of high quality office space coming onto the market through 2015 into 2016 With prime rents currently at US$1,000 per square metre, this will ensure rents remain stable. The increased interest from institutional investors in the commercial office segment of the market has also led to developers seeking to differentiate themselves through the delivery of higher quality buildings including green credentials, improved ICT and better car parking allowances. Finally, the increase in interest from institutional investors seeking to buy fully let grade A buildings also means it is easier to exit from investments making the market more attractive for equity investors. THE RETAIL MARKET There has been a lot of talk about the modern retail revolution in Nigeria but so far, there has not been that much to show for it. Since the development of the Palms Shopping Mall in 2005, the renovation of the Adeniran Ogunsanya Shopping Mall in 2011 and the opening of the Ikeja Mall in 2011, there has been no additional delivery of a large modern shopping mall in Lagos to date. However, UPDC’s Festival Mall in Festac is currently under construction and is due to be delivered in 2015 with numerous additional malls still at the planning stage. This does suggest the hurdles that need to be surmounted in order to deliver large scale mall developments in Lagos including clean title to large tracts of land, gaining planning permission and lining up the required financing. However, one step below the level of large modern malls, the retail revolution is powering ahead with numerous smaller mall developments securing land, gaining planning permission, undergoing construction and becoming fully let over very short time frames. As regards time to market, it does appear that bigger may not always be better.

5. International perspective, local expertise
Lagos Real Estate Investment Report
Q3 2014
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THE HOSPITALITY MARKET The ongoing Ebola scare led to a drastic fall in hotel occupancy rates particularly through the month of August. This was coupled with advice not to congregate in large numbers leading to a considerable drop in the event conference and party activity hotel revenue generating sub-sectors. With the declaration of Nigeria as Ebola free, hotel guest numbers are expected to rise again albeit at a gradual pace. Over the longer term, the outlook for the sector appears to be very positive with the countrys GDP re-basing leading to renewed interest in the country as a prime investment destination within Africa. The knock on effect has been a considerable increase in visitor numbers to the country and attendant rise in hotel occupancy rates. The vibrant hotel market is a draw for international operators. Expected growth in hotel rooms by the Protea Group, Marriot and Starwood among others over the coming years is put into perspective by a recent PWC Hospitality Report which has highlighted estimated total hotel room revenue to grow by 150 per cent over the next four years. 4. REAL ESTATE FINANCING The Nigerian Monetary Policy Rate (MPR), the rate at which banks lend to each other currently stands at 12 per cent and has held at this rate since September 2011. Even with the MPR rate at 12 per cent for the past 3 years coupled with a gradual fall in inflation rates, lending rates have stubbornly refused to fall to levels anywhere near the MPR and currently stand at circa 22 per cent. The quantitative tightening instituted by the Central Bank in recent times has also led to banks scrambling to shore up their capital bases with even less of an incentive to lend to the real sector.
The finance story is much more positive for institutional grade prime real estate development where expected rental receipts are denominated in dollars.
There are an increasing number of local and foreign institutions willing to lend at dollar denominated single digit rates to such projects having neutralised the exchange rate risk hence allowing such projects to attract financing at or below the cost of inflation. Unfortunately, this has led to a two tier real estate market with institutional grade real estate being funded while projects targeting local demand are left floundering due to prohibitively expensive local financing.
5. ABOUT US MCO Real Estate is your trusted partner in the Lagos real estate market. We are a focused real estate investment and advisory firm who prides itself on our combination of an international perspective and local expertise. We offer strategic investment advice to investors seeking to enter the Lagos real estate markets, we implement sales, leasing and acquisition mandates, we source funding for local development projects and we provide detailed research across all sub-sectors of the market including commercial office, residential apartment towers and housing estates, shopping malls, hotels, logistics and oil and gas infrastructure. We believe that by partnering with us, we will avail you a level of expertise and experience that will ensure you a much greater probability of achieving success.
1. CONTACT US
2.
Munachi C Okoye Managing Director MCO Real Estate Limited 5th Floor Mulliner Towers, 39 Alfred Rewane Road Ikoyi, Lagos, Nigeria Tel: +234(0)806 924 5688 Email: info@MCORealEstate.com Web: www.MCORealEstate.com

6. International perspective, local expertise
Lagos Real Estate Investment Report
Q3 2014
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Copyright © MCO Real Estate, 2014. All rights reserved
Important Risk Warnings and Disclaimers This document includes information obtained from sources which MCO Real Estate Limited (‘MCORE’) believes to be credible but which it has not independently confirmed. MCORE, its advisors, directors or employees do not make any assurances, guarantees, representations or warranties as to its accuracy, reasonableness or completeness and neither MCORE nor its advisors, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from the use of this document or its contents or otherwise arising in connection with this document. The opinions presented in this report may be changed without prior notice or cannot be depended upon if used in the place of the investor’s independent judgement.