Lagos Real Estate Investment Report Q1-2015

International perspective, local expertise
Lagos, Nigeria Real Estate Investment Report
Q1: 2015
Introduction: Successful presidential elections bode well for the stability required to continue along the
path of economic development particularly in the face of lower oil prices and the
attendant challenges to operating a fiscally balanced budget
Nigerian Economy: A lower oil price and Naira depreciation coupled with the disruptions caused by the just
concluded elections have negatively impacted growth and led to inflationary increases in
the first quarter. Budgetary deficits based on the halving of oil revenues which
constitutes 75% of Nigeria’s income may lead to the uninviting prospect of an increase in
Nigeria’s debt profile.
Q1 Real Estate Market:
 Overview The heightened political risk caused by the presidential elections coupled with currency
volatility brought about by a falling oil price meant that there were few real estate
transactions over the quarter.
 Finance Continued fiscal tightening by the Central Bank has led to upward pressure on lending
rates and contraction on lending to the real economy in general and to real estate in
particular. However, a peaceful conclusion to the elections has reaped dividends in a
stock market rally, tightening bond yields and the strengthening of the naira against the
dollar with a positive outlook for economic growth
 Land Prime land prices have been stable with no change over the first quarter on the back of
very few transactions
 Residential The middle market has continues to show resilience in a volatile economy buoyed by the
demographics of a growing urban population. The prime market remains weak with low
demand and greater sensitivity to macro-economic changes due to its profile as a store
of wealth
 Commercial Office A strong supply pipeline of improving quality is expected to come onto the market from
2015 into 2017 potentially absorbing demand with rents remaining stable
 Hospitality A growing economy, high room rates and a low supply of quality product is attracting
both international operators and local developers to enter the market
We introduce our Q1 2025 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 focused on all parties that have an
investment or development interest in the Lagos and Nigerian real estate markets. We trust it will bring clarity to your
investment decision making process as you seek to create value in the Nigerian real estate markets.
The first quarter 2015 has not been a typical start to the year which is usually the time to take stock of the prior year and
plan for the year ahead. This year, the first quarter has been very volatile, typified by a falling oil price leading to an
attendant falling naira causing a falling stock market as international investors pull out fast money all wrapped up in an
economy paralysed by a presidential election initially due to take place in February, now in March with the swearing in due
to take place by May mid-year.
The market is vibrant and ever changing and requires an expert eye to get it right and in the midst of all this upheaval, MCO
Real Estate is your chosen real estate partner with an international perspective and local expertise to guide you through
choppy waters and ensure your funds are securely placed to generate extra-ordinary returns.
Lagos Real Estate Investment Report
Q1 2015
International perspective, local expertise
We believe you will enjoy our latest report and hope that it assists your decision making process in relation to investment in
Lagos within a wider Nigerian context. If you find this report of value, we ask that you kindly forward it to your in-house
investment team or to any colleagues involved in African Real Estate with a focus on Nigeria. Please also feel free to
contact us or visit our website for further information on what we can do for you.
The year started on a volatile note characterized by a collapse in global crude prices followed by the depreciation of the
naira. The oil price moved from a high of US$109 per barrel in mid 2014 to a low of US$44 per barrel in January 2015 before
stabilizing at circa $50 per barrel at present. The fall in crude oil prices does not bode well for a number of countries where
oil is the primary source of revenue including Russia, Saudi Arabia, Angola and Nigeria.
The Central Bank of Nigeria was finally forced to give up its
support of the naira which subsequently fell against the dollar by
16 per cent from US$1/N168 to US$1/N197. This was coupled
with the uncertainty over the outcome of presidential elections
initially expected to hold on February 14th before being
rescheduled for the 28th March.
The oil price has recently stabilised at circa US$50 per barrel,
while the National Assembly has agreed an official benchmark of
US$53 per barrel for the 2015 budget. Nigeria’s elections have
passed peacefully in no small measure helped by President
Jonathan conceding defeat to Muhammadu Buhari even before
counting of votes was concluded This single action caused the
stock market to rally by 8 per cent to levels not seen since
November 2014.
Once the euphoria has died down, the new government of incoming President Muhammadu Buhari has a lot of work on its
hands with lower revenues and depleted reserves available to undertake capital intensive development projects. The
monetary tightening that the CBN instituted in the run up to the elections as a means of keeping the lid on inflation, has led
to a lack of liquidity in the system, higher interest rates and the starving of funds to the real sector. The National Bureau of
Statistics has stated that the economy grew by 5.94 (year-on-year) in the 4th quarter of 2014. This was lower than the 6.77
per cent achieved in the equivalent quarter of 2013 and also lower than the 6.23 per cent achieved in the preceding third
quarter of 2014.
The slowdown in growth has been attributed to security fears in the northern part of Nigeria negatively impacting commercial
movement of goods and services. The Non oil sector grew by 6.44 per cent in Q4 2014 while Oil GDP grew by 1.18 per
cent. Non oil sector GDP growth was driven by the agriculture, trade, textile, apparel and footwear and the real estate
In February, inflation rose to 8.4 per cent, an 0.2 per
cent increase on the January figure of 8.2 per cent.
Surprisingly, the 12 month moving average at 8.1 per
cent in February was close to the 8.0 per cent 12
month moving average observed from May to
December suggesting minimal inflationary pressure at
The National Bureau of Statistics has projected a
slight rise in inflation over 2015 to 8.8 percent.
External reserves stand at US$29.89 billion as at the
end of the first quarter 2015 compared to US$37.95
billion a year ago, a fall of 21 per cent.
Copyright © MCO Real Estate, 2015. All rights reserved
Nigerian Economic Metrices (March 2015)
External Reserves
Bony Light
Inflation (Feb 2015)
GDP Growth (Q4 2014)
Source: Central Bank of Nigeria, Trading Economics
Lagos Real Estate Investment Report
Q1 2015
International perspective, local expertise
Essentially, we do not expect the year to be business as usual. The lack of revenues at the federal level means that non
essential Infrastructure projects which drive economic and real estate growth are likely to be put on hold. This is already
evident in Abuja where MCORE is involved in some large scale projects. However, in the long term, we do expect there to
be greater accountability and discipline in the system which should enable the potential for long term planning and
investment that should yield positive growth and returns in the medium to long term.
As earlier explained, the heightened political risk meant that there were few transactions over the first quarter. The few that
ventured out to buy found themselves dealing with motivated sellers and were rewarded with prices at a considerable
discount to prevailing market value.
The growing attraction of the Lagos Real Estate Market is reflected in the number of new international entrants to the market
seeking to serve local clients but also to better position themselves to service international clients seeking services in the
local market. JLL and Cluttons are examples of new entrants to the market and we welcome them and their ability to deepen
the market and act as a means to channel international interest into the market.
The continued fiscal tightening by the Central Bank including the raising of bank-to-bank lending rates (MPR) to 13 per cent,
the forced reduction in the fees banks charge on fund transfers and the recent depreciation of the naira against the dollar
has placed upward pressure on lending rates making it more difficult for local developers to access funding for projects. The
naira depreciation has also put at risk projects financed by dollar loans where rental receipts are in Naira. The mismatch is
likely to put pressure on the servicing of such loans.
Real Estate & Constr Bank Lending Rates Mar 2015
Prim e (%)
Max (%)
Standard Chartered Bank
Access Bank
Citi Bank Nigeria
Diamond Bank
Stanbic IBTC Bank
Zenith Bank
Low est average rates. Sampling of 21 banks. Source: CBN
However, the inverse is that projects where
receipts are dollar denominated are now at a
competitive disadvantage to similar projects with
naira denominated rents.
On this basis, pre-lets that enable you lock in rents
at an early stage are still the best way to go.
MCORE is also actively encouraging joint venture
partnerships between developers and landowners
where the joint equity investment of land and
capital enables the parties reduce their exposure to
expensive and volatile debt funding.
Land values are based on advertised sales prices across the prime areas of Ikoyi, Victoria Island, Eko Atlantic City, Banana
Island, Lekki Phase 1 and Oniru. Average price increases of 12 per cent for the year and 1 per cent over the last quarter for
the sampled areas suggest muted growth slightly above inflation. Victoria Island (N425,000 / US$2,237 psqm) remains the
most expensive area in Lagos based on its position as the Central Business District of Lagos. However, with prices
increases of 17 per cent the year, Ikoyi at (N308,843 / $1,589 psqm) has shown the greatest appreciation over the past year
in no small part due to the increased densities allowed in the area in conjunction with the increased commercial
development along Alfred Rewane Road in particular.
Eko Atlantic prices which are denominated in dollars ($1,500 psqm or $2,500 psqm for waterfront land) are increasing in
local currency terms due to the recent naira depreciation. Lekki Phase 1 and Oniru at N131,864 / $694 and N132,537 / $698
psqm continue to mirror each other in value with increases of 7 per cent over the year for Lekki Phase 1 and 15 per cent for
Oniru. The Lagos Island market is currently operating across two tiers with Ikoyi, Banana Island, Eko Atlantic City and
Victoria Island areas clustered around a price range of $1,500-$2,200 psqm while Lekki Phase 1 and Oniru are at a lower
price range of around $700 psqm.
Copyright © MCO Real Estate, 2015. All rights reserved
Lagos Real Estate Investment Report
Q1 2015
International perspective, local expertise
Lagos Island Prime Land Prices (Apr 2014 - Mar 2015)
NGN Values / m2
N psqm
Victoria Island
Eko Atlantic City
Banana Island
Lekki Phase 1
USD psqm
Victoria Island
Eko Atlantic City
Banana Island
Lekki Phase 1
1. Land value data is derived from advertised sales prices
2. Eko Atlantic prices are blended waterfront and non-waterfront prices
Prime Residential (+N120m/US$500,000)
With the changing of the guard and an expectation of the plugging of leakages within the system, it will be interesting to see
the impact on the Abuja high-end residential market with its sensitivity towards government spending and its profile as a
store of wealth. The top of the Lagos market is generally undergoing challenges with demand falling below supply due to
contraction caused by a reduction in corporate patronage.
The Middle Market (N25-N120m), Affordable Housing (N12m – N25m)
In speaking to developers, it is widely recognised that the sweet spot in the market can currently be found in the middle and
affordable housing markets with prices characteristically between N20-N50m. While the high end market continues to suffer
from a lack of demand, the lower end market continues to benefit from the demand pressures of a rising demographic of
consumers with rising disposable income seeking housing within which to live. According to projections by the UN, Nigeria
will be the world’s fastest growing country over the rest of this century, making it the world’s third most populous country
after India and China. Hence this growing population will continue to support housing growth at the bottom of the market.
Prime commercial office rents across Victoria Island and Ikoyi which have risen through 2011-2013 are now flat with prime
office rents back at circa US$1,000 – US$1,200 psqm. Prime office demand remains muted and the considerable supply
pipeline through 2015 into 2016 of prime office space coming onto the market will prevent any upward pressure on rents.
Ikoyi, especially along Alfred Rewane Road is the new zone for commercial office development with projects coming on
stream in 2015-17 include Actis’ Heritage Place, BAT Tobacco’s Rising Sun development on 13 flrs due in 2015, ACA’s
6,600sqm 12 storey HQ (formerly Kings Tower) due in 2016 and Kingsway Tower on 15 floors due in 2017. Victoria Island
developments coming on stream in 2015 include Kanti Towers with 6,500 sqm of lettable space, Civic Centre Towers with
11,350 sqm of lettable space and Victoria Island Towers, Nest Oil’s new HQ with 7,500 sqm of lettable space.
The deadline for the Central Bank of Nigeria policy requiring banks to sell off non-core assets including legacy real estate
assets has been set for this April. It is expected that a number of banks with considerable legacy commercial property
assets will be under pressure to spin of these assets into separate vehicles towards disposal. Such forced sales will create
opportunities for buyers with deep pockets to go fishing for quality assets at a discounted price.
Copyright © MCO Real Estate, 2015. All rights reserved
Lagos Real Estate Investment Report
Q1 2015
International perspective, local expertise
We had earlier talked about all the noise around the Nigerian modern retail revolution with very little actual development to
match. Things are moving forward with a number of retail projects under development including Lekki Mall with 20,000 sqm
of retail space sponsored by Novare Africa Property Fund due in 2016 and Osapa Convenience Centre also in Lekki with
10,800 sqm of retail space and 3,700 sqm of office space sponsored by RMB Westport and due in 2015. The modern retail
sector continues to offer strong returns matched with its ability to absorb large amounts of capital which makes it attractive
to international funds, however, securing clean title to large tracts of land required to build such malls makes it a sector not
for the faint hearted.
The Nigerian Hotel Segment is very vibrant with 6,614 rooms in over 40 hotels in the pipeline according to the Hotel Pipeline
Report. Hotels under development average 165 rooms. Even though there is no guarantee that development planning will
lead to actual hotels, this is a very strong pipeline which will lead to an upward swing in number of available hotel rooms
over the coming two to three years. The number of room nights booked is growing, however, room rate growth is stagnant
and has only managed the low single digit figures over the past few years. The increased supply will lead to greater
competition and a flight of customers to quality. The high operating costs and the requirement to provide power 24/7 is a
damper on profit in the Nigerian market space and one of the reasons why we have among the highest room rates in the
world. Hotel Managers active in the Nigerian space include Carlson Rezidor with its Radisson Blu brand, Marriot which is
expanding rapidly following its acquisition of Protea in 2014 and Hilton Hotels.
MCO Real Estate (‘MCORE’) 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. Our clients include developers, local and international investment companies,
oil and gas companies, engineering and consulting firms, high net worth individuals, family offices and public and private
corporations. 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. Call us now to discuss how we can enhance value in your world.
Munachi C Okoye
Managing Director
MCO Real Estate Limited
5th Floor Mulliner Towers,
39 Alfred Rewane Road
Ikoyi, Lagos, Nigeria
Copyright © MCO Real Estate, 2015. All rights reserved
Tel: +234(0)806 924 5688
Email: [email protected]
Lagos Real Estate Investment Report
Q1 2015
International perspective, local expertise
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.
Copyright © MCO Real Estate, 2015. All rights reserved