The Nigerian real estate market struggled from 2015-2016 due to economic and political uncertainties, with rental rates declining and new construction projects stalling. However, the 2017 outlook is positive if the economy rebounds as expected. New developments in office and retail space are projected to increase occupancy and rental rates as demand rises, especially in Lagos, Abuja and major cities, supported by the 2017 budget's infrastructure spending and efforts to diversify the economy.

1. NIGERIA REAL ESTATE MARKET
OUTLOOK 2017

2. NIGERIA REAL ESTATE MARKET OUTLOOK 2017 Kings Court Realtors
Summary
As with other sectors, performance of Nigeria
real estate in 2015 and 2016 was underpinned
by economic fundamentals. Persistent negative
global realities commencing in Q2 2014 coupled
with endogenous factors made the year a tough
period requiring a decisive and determined
perspective for navigation.
The Nation started with a season of political
uncertainties and then moved to a period of
economic uncertainties; which were both met
with bearish market acceptance.
The fixed income market was quite volatile with
yields reaching as high as 18% and as low as
0% at varied points in the year. Foreign investors
commenced a sell-off due to declined oil prices,
depleting reserves, anticipation of a further
devaluation, prevailing political risk, foreign
exchange demand-restrictive policies and the
announcement by JP Morgan on the possibility
of ejecting Nigeria from the GBI-EM index.
Towards the end of the period, in Q4 2015, CBN
policies created changes in consonance with
persistent excess liquidity closing yields at low
ranges of 1.50%-11.78%. The equities market
was worse hit closing at -22.2% YTD, slightly
worse than about -20% same time last year.
While real estate market had a delayed reaction
to these macro-economic realities, our H1 report
stated that the news of a new Government
helped stimulate demand only for a short while.
Delays in receiving economic direction coupled
with other aggravating factors resulted in the
stalling of many new constructions, renting or
purchasing decisions in wait for a more enabling
environment. Real estate performance was also
influenced by topical issues such as NMRC,
insurgency and dynamics of building material
high costs.
With over 83,000m² of office space delivered in
2015, and an additional 100,000m² expected to
come onto the market in 2016 and beyond,
competition amongst landlords has been tight,
subsequently resulting in rental reductions and
tenant-friendly incentives. Rents for prime space
in Ikoyi and Victoria Island (VI) have fallen by up
to 12.5% since Q1:2015 which is a further
indication of competitive market conditions.
An important consideration to take note of is the
real value of property in the Nation, in the face of
the recent devaluations. Will Landlords be able
to transfer the loss to renters via increased rent,
or will the reduced demand continue to
stay/reduce prices thereby creating new real
property values?
This report offers an overview of the Nigeria real
estate sector from 2014- 2016 with a focus on
the prime markets of Abuja, Lagos and Port
Harcourt. It closes with an outlook for the sector
in 2017.
We trust you’ll find it a beneficial read.
Ayodele Thomas
Managing Director
Kings Court Realtors

3. NIGERIA REAL ESTATE MARKET OUTLOOK 2017 Kings Court Realtors
Market Outlook
Nigerian real estate and construction market
post rebasing has been seen to contribute
significantly more to the Nations’ GDP than
previously recorded. However, this contribution
seems to have quickly slowed down showing
negative growth between Q4 2015 and 2016 and
remaining stagnant into 2017. This is in line with
the general growth in GDP, which has seen
decline in the Q1 and Q2 2015, the weakest
since 2013.
The growth moderation of the non-oil sector (real
estate and construction inclusive) in 2015 in
comparison to 2014, is attributive to lower
government spending (due to lower oil receipts),
disruptions to the fuel supply and some
monetary policy actions aimed at managing the
pressures of foreign exchange demand.
Construction companies; small and large,
slowed down over the period in review. Reports
state that over N600 Billion is being owed
construction companies by the Federal
Government. Following this, these firms have
been forced to abandon projects and lay-off as
much as 10,000 workers across the country.
The present political administration has stated
that the past administration failed to release
capital votes since the second quarter of 2014.
In all, 6,525.63km of roads have been stalled in
the country.
The effects of political and economic uncertainty
was far reaching; stalling investment decisions of
households and corporations alike. Real estate
being capital intensive in nature was absolutely
unimmunized to this. Many new constructions,
renting or purchasing decisions have been
stalled till there is a more enabling environment.
Occupiers
It is expected that there will be a notable
increase in leasing activity and take-up,
particularly in recently delivered A-grade
buildings as Tenants take the opportunity to
relocate from Grade B or lower quality office
space to newer Grade A buildings with new or
upgrading tenants. Rental values are poised to
continue on a
downward trajectory in 2017, which will drive
the rental market upward.
With the rebasing of the economy from a
monolithic (oil dependent economy) to other
services, construction and real estate and
technology driven economy, we should see
office demand increasing significantly in 2017,
with most of the expected demand for space to
be in the range of 250m² to 500m².
We expect to see more owner-occupier office
buildings in 2017. Major insurance companies,
oil companies and technology companies are
already taking advantage of the devaluation of
the Naira and buying up prime lands for office
development. Q1 2017 started with the
development of Cornerstone Insurance
headquarter beside Sheraton 4 Point, Victoria
Island. Techno Oil has completed its office
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4. NIGERIA REAL ESTATE MARKET OUTLOOK 2017 Kings Court Realtors
building in Oniru, Victoria Island in Q1 2017.
Property Market Trend
Lagos Market
A change in overall perceptions has been the
theme for the office market in Lagos over the
past 12 months. After almost a decade of
unsustainably high rents, increasing supply,
tougher economic conditions and all round
uncertainty, markets are correcting.
With over 83,000m² of office space delivered in
2015, and an additional 100,000m² expected to
come onto the market in 2016, competition
amongst landlords has been tight, subsequently
resulting in rental reductions and tenant-friendly
incentives. Rents for prime space in Ikoyi and
Victoria Island (VI) have fallen by up to 12.5%
since Q1:2015 which is a further indication of
competitive market conditions. While the
development pipeline for office space in Lagos
is expected to slow down significantly after
2016, some pressure is still expected on rental
growth and market activity as the Nigerian
economy struggles to regain momentum.
Port Harcourt
Offices in Port Harcourt are largely
self-occupied, converted or
purpose-built structures for specific
organizations. Smaller
organizations often rent residential
apartments or standalone houses
and convert them to offices. A third-
party office space market as an
investment sub-set is almost non-
existence, with only a handful of
buildings dotting Stadium Road, Olu
Obasanjo Way, Trans Amadi Road and Aba
Road. Residential block of flats on Ikwere Road
have all been converted to offices and shops to
cater to a lower cadre of businesses. In 2015,
rents either stayed constant or improved only
slightly.
Abuja
Prime office space in Abuja is concentrated in
the CBD, Wuse 2 and Garki Area 11. The
development pipeline of mid-range space is
also quite rich in Utako. As expected with any
capital city worldwide, majority of the buildings
are public offices that house various
government ministries, departments or
agencies.
However a number of third party office blocks
dot the Abuja skyline. In few cases, some
Government agencies put up some space
within their buildings for lease. In Wuse 2, Area
11 and 10 (mentioned in order of desirability),
there are various ‘plazas’ that house from as
little as 12 office spaces to over 100 with office
spaces measuring as little as 12sqm to as large
as 100sqm floor plates. Developments of this
kind (Plazas) saw a number of completions in
2015, and in some cases, office spaces were
sold rather than being leased for yearly rents.
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5. NIGERIA REAL ESTATE MARKET OUTLOOK 2017 Kings Court Realtors
While the Abuja market has been and is
expected to remain a small market, an
increasing number of corporates are seeing the
importance of having a presence close to the
seat of government. In lieu of demand for large
pockets of space in pricy prime grade
properties, we have seen corporates opt for
quality affordable space, residential
conversions and more recently serviced or
virtual offices. To this extent, Landmark / Regus
opened a 50 workstation centre in the central
business district of Abuja during the first quarter
of 2016 and have noted strong demand from
the technology and professional services
sectors.
Real Estate Asset Lifecycle
Source: estate intel
Most organizations spend up to 30% of their
total operating expenditure on rents and
Facilities-related activities, “for example, if you
take a company with turn-over of N1 billion and
you are operating a cost to revenue ratio of
60%, leaving you with a gross of 40% and a net
of probably 25%, it means #200 million of what
you spend relates to maintenance”.
However, facility management cost can be
reduced by developing ‘smart buildings’, that
means concerns and issues related to Facility
Management must be addressed at the design
stage of any real estate construction.
Property Taxes in Nigeria
There are various taxes that apply to real estate
or real property transactions in Nigeria. The
common public perception that there are no real
estate taxes in Nigeria is not correct.
Some of the common taxes that apply to real
property transactions in Nigeria are the
following:
 Companies Income Tax and Personal
Income Tax.
 Education Tax. (2%)
 Value Added Tax. (5%)
 Capital Gains Tax. (10%)
 Stamp Duties Tax.(75 kobo for every
N200)
 State Property Taxes – Lagos State Land
Use Charge Law and the Federal Capital
Territory Property Tax.
 Companies Income Tax & Personal
Income Tax (24%-30%)
 Withholding Tax (10%)
Property Prices in Lagos (Commercial)
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6. NIGERIA REAL ESTATE MARKET OUTLOOK 2017 Kings Court Realtors
2017 Property Market Outlook
The outlook for the Nigerian real estate market
in 2017 is positive and will be largely dependent
on the overall performance of the economy as
the demand, supply and price of space is
contingent to the wellbeing of occupiers,
developers and investors.
While the development pipeline for office space
in Lagos is expected to slow down significantly
in 2017. Lagos will continue to take the lead,
Abuja and 2nd tier cities to follow. With over
25,000sqm to be delivered, Ikoyi in particular
may officially become the prime office
destination while Eko Atlantic gradually moves
beyond infancy. Some pressure is still expected
on rental growth and market activity as the
Nigerian economy struggles to regain
momentum.
As liquidity increases to compliment the high
consumer spending culture of Nigerians, retail
business will soar and demand for retail space
will follow. This will also be premised on the
removal of bottlenecks currently felt by all in the
retail value chain; it is expected that reasonable
appeals for change will not fall on deaf ears for
too long.
Similar to the office sub-market, the retail
pipeline is very rich with over 100,000sqm of
lettable space to be delivered within the next 12
months. These projects are primarily led by a
few developers/investors who have successfully
delivered similar projects in the region. It is
however expected that new completions will be
better looking and take into consideration
lessons learnt from past developments.
Beyond the existing pipeline, malls may get
bigger in prime locations (Abuja and Lagos), to
cater to more entertainment features lacking in
existing stock. Such malls will do well to be
located in currently un-serviced nodes such as
Ogudu or Magodo in Lagos. It is also expected
that retail projects will emerge in locations
beyond the south and move towards the middle
belt and Northern states such as Kaduna.
Source: Broll
With the new government Improvements in
trade relationship (especially with China) and
investment with emphasis on the non-oil
sectors, more office spaces will be required to
cater for the new entrants. In all, the real estate
market will be responsive/ reactive to the
positive economic sentiments.
Predictions
The 2017 Budget has been described as the
‘Budget of Recovery and Growth’. With a
budget size of N7.298tn. 2017 budget is 20.4%
higher than 2016 estimates. It provides a clear
road map of policy actions and steps designed
to bring the economy out of recession and to a
path of steady growth and prosperity.
Key capital spending provisions in the Budget
amounts to over N2.24tn (30.7% of total
budget), which includes several infrastructural
projects.
With increased government spending, capital
injection and good forex policy aimed at
stabilizing the Naira, Nigeria economy should
be out of recession by Q3 2017. With economic
growth and rises in property prices and rents
from Q4 2017.
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