Why Nigeria’s real estate is looking up

Traditionally dependent on the rise and fall of the oil markets, Nigeria is seeing shoots of life in new and previously underwhelming sectors of its economy as it navigates uncharted territory as Africa’s premier powerhouse.

February 12, 2018

Traditionally dependent on the rise and fall of the oil markets, Nigeria is seeing shoots of life in new and previously underwhelming sectors of its economy as it navigates uncharted territory as Africa’s premier powerhouse.

As the country emerges from its worst recession in 25 years, Nigeria’s growing technology and agriculture sectors are a key part of a diversifying economy that’s attracting global investor interest.

“After a challenging 2017, the economy has started to recover, with development in its non-oil sectors,” says Tom Mundy, Head of Advisory, Sub-Saharan Africa, JLL.

The technology sector in particular has a compelling role to play. Global technology companies including Facebook and Google have announced plans to develop African headquarters in Lagos, where a thriving start-up scene includes well-known consumer tech businesses such as and iRoko TV.

Nigeria’s tech sector is also picking up steam outside Lagos. In the capital city of Abuja, government support for entrepreneurs is nourishing a young business ecosystem, with co-working complexes such as Co-Creation Hub serving as the foundations of the up-and-coming tech community. The southeast, traditionally known for its oil and gas industries, is home to an expanding group of tech start-ups such as bitcoin trading start-up and on-demand repair service WeFix.

“Technology is very much a part of the African zeitgeist,” Mundy says. “With the majority of the continent’s 1.2 billion people getting online and a rise in disposal income, there is a largely untapped market for tech services.”

Yet it’s the not the only driver of Nigeria’s strengthening non-oil economy; there’s a growing focus on traditional industries as the government implements The National Investment Agriculture Plan that will focus on farmers and agriculture businesses.

“What’s encouraging is that there has been growth in the agricultural sector, a large component of the non-oil economy,” says Mundy. “Some 70 percent of Nigerians are employed in agriculture, yet the sector contributes only 40 percent to national GDP, pointing to a substantial opportunity for new businesses.”

The real estate impact

As Nigeria’s economy moves further away from its oil-based roots, its cycles of high and low liquidity – typical of all oil-reliant economies – should start to flatten.

This should bring greater stability to real estate markets in Nigeria’s big cities, which have suffered from a sharp supply-demand imbalance, widening vacancy rates and falling rents in recent times, Mundy says.

In Lagos, he explains, boom times in the oil cycles led to an oversupply of prime commercial buildings entering the market from 2014 onwards. “These high-quality assets have created a degree of challenge, because their rates were quite expensive,” notes Mundy. With the economy entering a low point, rising vacancy rates pushed rental prices down, in turn reducing investor confidence.

“Of course, there will be the usual lag between economic recovery and market recovery but we are now starting to see evidence that the decline in rental rates in Lagos is reaching the bottom of the cycle,” Mundy says. “The supply and demand for commercial real estate is coming back into balance. Down the line, there should be an emphasis on B-grade, good-quality buildings that better suit the price requirements of corporations who are reluctant to expand.”

The burgeoning tech sector is also creating new opportunities. “While Lagos has been drawing comparisons to Nairobi as the tech hub of Africa, technology isn’t yet able to drive the economy in the short-term – but it is driving development in its support industries such as warehousing and manufacturing,” Mundy says. “An undersupply of logistics facilities and A-grade warehouses opens the market for good-quality product, and we’re beginning to see a growing business in international-grade data centers.”

Changing business perceptions

A renewed focus on developing civic infrastructure is boosting international perceptions of doing business in Nigeria. “For many companies, Lagos is still complicated to do business in – there are power outages, congestion means it can take seven hours to get to the airport, and road quality can be poor in many areas,” Mundy says.

However, factors such as a stabilising currency, streamlined application processes and a manageable decrease in inflation are encouraging new business, locally and from abroad. “The ease of doing business and access to credit has improved,” says Mundy.

While major multinational brands are already represented across Africa with small offices, there is a growing, untapped potential for its fast-growing cities to attract larger-scale headquarters. “In Nigeria, the undersupply of investment grade real estate stock is being corrected, and there are increasing opportunities for both local and international investors,” Mundy says.

As the hub of West Africa, Nigeria’s rebounding economy will drive investor interest across the continent. “Nigeria recovering increases confidence in the other hubs of Africa – Angola, Kenya, South Africa,” Mundy says. “African real estate hasn’t until now been a destination for international capital, but we’re starting to see indications that there’s overseas interest in the continent’s higher-yielding markets.”

And while the Presidential elections to be held in February will be closely watched, the current Nigerian government’s Economic Recovery and Growth Plan (ERGP) for 2017–2020 is a step in the right direction in reassuring investors about the country’s future path.

“For Nigeria, 2018 will be a year of consolidation and recovery,” Mundy concludes. “In an environment where it is increasingly hard to find returns, any evidence that the country is making serious progress in implementing structural reforms and breaking the historical reliance that the country has on oil exports, will be welcomed by investors.”