The real estate market in Lagos, Nigeria has seen both ups and downs in the first half of 2023. While some sectors like residential and commercial real estate have shown signs of recovery from the pandemic slowdown, others like the retail sector continue to struggle. Here is an in-depth look at the major trends shaping Lagos’ real estate landscape.
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Residential Real Estate
The residential housing market in Lagos has shown significant signs of rebound after the disruptions caused by the COVID-19 pandemic over the past two years. According to leading real estate services firm Knight Frank, average rents for high-end apartments in Lagos rose by 13% in the first half of 2023 compared to the same period last year 1. A major factor driving this trend is the return of expatriates and skilled Nigerian professionals moving back to the city due to relaxation of pandemic restrictions. Additionally, with the uptick in economic activities, demand for rental apartments has outstripped supply which has led to upward pressure on rents.
However, the rate of increase has not been uniform and has varied across neighborhoods. For instance, prime neighborhoods like Ikoyi and Victoria Island registered the steepest rent increases of 19% and 17% respectively in H1 2023 while suburbs like Lekki and Ikeja saw more modest single-digit growth 1. This underscores the preference among high-income urban professionals for centrally located apartments in mature neighborhoods with well-developed infrastructure and amenities.
On the other hand, the sales market for residential properties has been slightly more muted as buyers and investors adopt a cautious approach owing to high mortgage rates and the upcoming elections. Regardless, increased demand from first-time homebuyers and diaspora Nigerians investing in real estate back home has helped sustain sales volumes in the first half of 2023 2.
Overall, residential real estate in Lagos displays underlying demand and growth drivers despite some headwinds. With the elections out of the way, experts predict both rents and housing prices could see faster growth in 2023 H2 barring any unforeseen disruption 32.
Commercial Real Estate
The pandemic had sparked concerns that demand for office space in Lagos could drop significantly as remote work became prevalent. However, H1 2023 has seen robust leasing activity dispelling many of those apprehensions. Total office space absorption in Lagos during the first half crossed 100,000 sqm, already surpassing the full-year 2022 figure 4. Many corporates have been migrating from less desirable business districts like the mainland to premium offices in Victoria Island and Ikoyi to better attract talent. For instance, Amazon recently leased 10,000 sqm of grade A office space in Victoria Island for its Nigerian headquarters 5.
However, vacancy rates still remain elevated at 20% on average across Lagos, as per JLL estimates, due to the glut of new office developments over the past few years 6. This surplus of supply has kept rent growth relatively modest at around 2-5% in prime buildings and locations during H1 2023 compared to 15-18% growth for high-end residential apartments over the same period 4.
Looking ahead, absorption is expected to remain strong driven by local and multinational firms focused on return-to-office plans. However, rising interest rates could defer some construction projects planned over the next few years until market conditions stabilize.
Retail Real Estate
The retail and shopping center segment has been the laggard, struggling to regain traction after the pandemic. Mall vacancy rates remain at a high of around 25% with low investor appetite for new developments 7. Rental declines have also persisted, with prices dropping 5-10% in H1 2023 relative to the preceding six months according to Broll Nigeria 7.
This lackluster performance is tied to still weak consumer spending and footfalls as high inflation has eroded purchasing power and dampened demand. Retailers have also been cautious about expanding outlet networks in this environment. Until macroeconomic conditions improve significantly, the retail segment is likely to underperform compared to commercial and residential real estate.
Industrial Real Estate
One bright spot has been industrial real estate, with demand for warehousing and logistics facilities surging over 15% in the first half of 2023 compared to a year ago 8. This demand has been propelled by large e-commerce firms like Jumia and international third-party logistics players who have set up distribution hubs around Lagos to achieve faster deliveries to customers. Limited availability in prime locations is creating a scarcity which has driven warehouse rents up by 20-25% over the past year 8.
Several new entrants are also expected to enter this segment given substantial room for modern warehousing and storage facilities to still develop across Lagos. The growth prospects for industrial real estate thus remain highly promising in line with the rapid evolution of Nigeria’s logistics sector.
Key Factors Affecting Outlook
As seen above, Lagos’ real estate market has made a reasonably strong recovery in H1 2023 despite some lingering sector-specific issues. However, experts highlight some downside risks that could derail momentum in the coming months 9:
- Persistently high inflation and interest rates weigh on consumer and business sentiment
- Potential currency devaluation and wider economic volatility around February elections
- Ongoing security challenges especially in remote areas across Lagos state
- Rapid construction growth in previous years creates oversupply in some sectors
That said, if the elections proceed smoothly without major upheaval, the city’s underlying demand drivers and demographics should sustain real estate’s growth trajectory. Continued infrastructure development and foreign investment will also be key to unlocking Lagos’ massive potential as Africa’s preeminent commercial hub.
Sources:
- Knight Frank (2023), Lagos H1 2023 Residential Market Update
- Northcourt (2023), Lagos Residential Real Estate Market Report.
- Knight Frank (2023), Lagos H1 2023 Residential Market Updatet.
- Broll Nigeria (2023), Lagos Office Market Report H1 2023
- Estates Intelligence (2023), Amazon Leases Victoria Island Office
- JLL (2022), Real Estate Market Outlook Nigeria
- Northcourt (2023), Lagos Retail Sector Update H1 2023
- Broll Nigeria (2023), Lagos Industrial Market Insights H1 2023
- PwC (2023), Nigeria Real Estate Outlook 2023