Premium Property Outlook: 2015 in Retrospect (Nigeria)

2015 IN RETROSPECTPREMIUM PROPERTY OUTLOOK

INSIGHT

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UARY

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A Publication of

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2. Macroeconomic Overview

1. Perspective

3. Premium Residential Real Estate

4. Grade ‘A’ Commercial Developments

5. General Housing Market Trends

Premium Property Outlook | Q1, 2016

OUTLINE

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leased out by Fine and Country West Africa.

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6. 2016 and Beyond

PERSPECTIVE

Recently, the Minister for Housing, Infrastructure and Works, Mr Fashola, lamented about the infrastructure deficit in Africa, stating: “This is the time to show that our nation and our national economy is bigger than the challenges posed by dwindling oil prices. This is the time to diversify and change the face of our economy. But the risks that stand in the way of investing the fund are caused by us and they must be changed by us. He also said, it was time to invest in the real sector, adding that "the biggest opportunity presented itself for the nation to act towards diversification rather than sloganeering it". We agree and in relation to our sphere of influence, we believe that the time has come for professionals with expertise in the real estate industry to contribute our quota to developing real estate insight especially on premium real estate, infrastructure and urban development as we join cities like London, New York, Dubai, Singapore in competing for what many consider to be shrinking global resources and investments. The Premium Real Estate Report from Fine and Country West Africa is a step towards the vision of a better developed real estate sector and a greater Nigeria.

In 2015, irrespective of the myriads of economic and political instability in Nigerian, the Nigerian real estate market experienced a steady interest and some foreign direct investment (FDI), growing urbanisation, and a sustained demand for appropriately priced Grade A office spaces and premium residences. The year also witnessed the release of the most grade A office spaces in Nigeria in any year, with the Quantum Luxury owned Civic Centre Tower aptly tagged "The Intelligent Building" successfully completed and leased fully to A grade corporates; the Iconic Nestoil Tower Victoria Island, West Africa's first LEED certified mixed used development offering exceptional offices and corporate residences, NIPOST offices in Victoria Island, Kanti Offices, Heritage Place, Ikoyi, Temple Tower, Ikoyi, Lakepoint in Banana Island, the World Trade Centre offices in Abuja amongst others with some nearing completion in 2016 within the prime location of vibrant Victoria Island, Ikoyi and environs. Lagos has clearly joined global cities with a strong supply of Grade A office spaces.

The trend towards new urbanism continued as public and private sector developers kept the pace of building satellite cities and new lifestyle residential communities on the outskirts of some of Nigeria's largest cities and on the other side of the equation, with new mixed developments ranging from mid to premium in "destination locations" such as the Eko Atlantic, Orange Island, Chevron's Pension Fund Twin Lakes Residential Estate, The Centenary City Abuja, Sunrise Hills, Asokoro Gardens, World Trade Center in Abuja, Lakowe Golf Estate, Enugu Golf Estate, and the strong release of retail developments in those aspirational locations including the Circle Mall Lekki, Festival Mall amongst others, demonstrating a new trend in Nigeria's emerging and premium real estate development.

This report shows the review of how the premium real estate space performed in 2015 with an overview of activities, and the impact of the economy and politics on real estate investors. The report is a preliminary report to a Quarter 1 report for 2016, which will expound more on the drivers for change in the premium real estate space; shed more light on the opportunities that abound for investors, look at the critical factors that will transform the Nigerian Real Estate space and finally deep dive into what leading experts in the industry feel will be the winning strategies for 2016 along with the factors that should shape the sector and sustain the momentum in premium real estate developments.

Here's to a successful year for you, your organization and Nigeria.

Research Team, Fine and Country West Africa.


We believe that the time has come for

professionals with expertise in the

real estate industry to contribute our

quota to developing real estate insight

especially on premium real estate,

infrastructure and urban development“

“2

Steep D

ecline


2015 was truly an overwhelming year for the Nigerian economy. The steep decline in Nigeria's economic growth rate, the early season of political and economic uncertainties, the commodity price weakness abroad, the declining value of the Naira, the change in government, changing investment laws and a number of challenges as a result of fluctuating oil prices were some trends that shaped the economy; making it record overall slow economic progress. Also contributing to the epileptic growth across board was the mono-directional focus of government to fight against corruption and fiscal austerity, with little emphasis on policies geared towards stimulating economic growth.

As Crude oil price moved from the lofty height of US$109 per barrel in mid 2014 to a low of US$44 per barrel in January 2015, as expected, hydrocarbon dominated economies were put under pressure including Nigeria. Though government responded by reducing the forecast price for oil in 2015 on two different occasions; (from US$78/barrel, and then US$65/barrel), until government eventually conceded to run a deficit budget.

Our foreign reserves also officially closed at $29.8 billion representing a 15.4% year on year drop, GDP forecast was lowered to 5.5% by government from 6.2% of previous year; Federal Government Bonds was delisted from the JP Morgan Emerging Market Bond index and reflected the increasing apprehension amongst international investors towards the economy and the CBN restriction of access to FOREX at the cheaper interbank rate for the importation of 41 items increased apprehension amongst international investors towards the economy.

MACROECONOMIC OVERVIEW

“Also, foreign and local investors saw the growth potential of Nigeria’s real sector, spurred by rising consumer spending of the burgeoning middle class, economic growth and investments in infrastructure. These trends opend up not only the property market but also other inaccessible markets”

In 2015, despite the downturn in the economy, caused by the dwindling revenue from oil, crash of the naira and apprehension over government policies, The Refined Investors Series experts called on would-be investors in the real estate sector to take advantage of the creative opportunities in the sector with the understanding that it is still a growing sector

Sources: Standard Bank Group; World Bank

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Similar to other sectors, the overall performance of Nigerian real estate in 2015 was underpinned by the aforementioned economic fundamentals. Although in the last few years, Nigeria's real estate market did expand rapidly with a steady increase on the foreign direct investment (FDI), fast urbanization, a strong demand for Grade A office spaces and premium residences, yet the Nigerian property sector is widely regarded as “high-risk”, “high-return” marketplace because of a number of pressing challenges from the opaque and complex regulatory environment to the exorbitant and bureaucratic costs associated with building, transferring and registering across the federation.

While the real estate sector was said to be growing from the report by Nigerian Bureau of Statistics (NBS) in 2015, most Nigerians still live in informal structures. 70-80% Nigerians live in unplanned settlements and a large chunk live in slums according to a UN report. In our view, the stock of formal and premium property is small; with residential, office, retail and hospitality space located almost exclusively to the urban areas - Lagos, Abuja & PH.


For example, Lagos, one of Africa's largest cities with a population of over 17 million, is the main commercial hub of Africa's largest economy and the most favoured location for international corporations. The city comprises four main islands with seven prime residential, commercial and retail nodes: the Lagos CBD, Victoria Island (VI), Ikoyi, Lekki, the Lekki Free Zone, Apapa and Ikeja. Rental values for commercial and residential space show wide variances across neighborhoods. The region continues to attract institutional investors, and the key challenge for them remains identifying suitable high quality premium stock in the relevant real estate category.

NBS report revealed that the real growth recorded in the Real Estate sector in the Q3, 2015 stood at 2.06%, lower from growth recorded in the Q3, 2014, and also lower than growth reported for the Q2, 2015 by 3.85 % points and 0.92% points respectively. Quarter-on-quarter the sector picked up by 5.56% in the Third quarter of 2015. The sector contributed 7.57% in real terms to the total GDP in the Third Quarter of 2015.

“ ”High Risk, High Return

Too much Bureaucratic costs

Unstable Policy

70-80% Live in unplanned

settlements

Lagos, Abuja, Port-Harcourt:Choice location for investors

Lagos alone accounts for

Grade A&B 2426000m

office stock

Average asking rent in prime area

were at / annum 2$785/m

Projected to grow by 10%

Valued at N6.5 Trillion

Contributed 7.5%to GDP at Q3

2015 Premium Developments

- Civic Towers - Nestoil Towers- Rose of Sharon Towers- Kanty Towers- Landmark Towers- Nipost Towers

Over office space were added to Ikoyi & V.I Markets in 2015 60,000sqm

Our insight team gathered that 2015 luxury developments surpassed the previous years' developments by a 12% margin. For example in Victoria Island, NestOil Towers residences achieved highest percentage of 91%, with Centre Heights scoring 79% to emerge the nearest in matrix comparison. This shows that Nestoil Tower has a difference of 12% over the average premium rental per square metre in Victoria Island which is $290/m2/P.A

MACROECONOMIC OVERVIEW

4


Sources: Federal Ministry of Land, Housing & Urban Development & 2015 Housing Finance Africa Publication, World Bank

Comparative Real Estate Indices

Ikoyi-Lekki Bridge, Lagos

Osborne Towers, Ikoyi Lagos - Call 08096000042

5

23.30%

15.40%

19.10%

22.70%

19.60%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

1

Real Estate Alternative Investment Equity

Cash & Cash Equivalent Fixed Income Asset Allocation (%)

Source: MCO Real Estate Report


PREMIUM RESIDENTIAL REAL ESTATE

A recent report by worldwealthreport.com shows that Africa's high net worth individuals (HNWIs) invested most heavily in real estate (23.3%) more than other asset allocations. Cash being the next at 22.7%, while the balance of other portfolios was allocated to fixed income (19.6%), equities (19.1%), and alternative investments (15.4%).

In 2015, a report published by the Nigerian Bureau of Statistics NBS also showed that following the rebasing of the Nigerian economy, the real estate sector's contribution to GDP became larger (by 30-40%) than was previously estimated. The sector became the 6th largest sector in the economy and was growing faster than average GDP growth. The nominal contribution for the first Quarter stood at 7.79 percent, marginally higher relative to the 7.36 percent reported for corresponding quarter of 2014

In 2015, PwC forecasted that the Nigerian real estate sector is expected to be valued at $13.65 billion in 2016, compared to the value of $9.16billion in 2014.

Fine and Country's insight also revealed that the high-end luxury residential developments for 2015 were clustered in a handful neighborhood; with Banana Island, Ikoyi, Victoria Island, Eko Atlantic and Lekki Phase1 being the choice location for developers and investors in Lagos; Maitama, Asokoro and Jabi for developers in Abuja and GRA Phase2

for developers in Port Harcourt.

These areas command housing prices that rank among the highest in Africa and somewhat higher than in many western markets. On the average, in Lagos the annual cost of renting a 3-bedroom luxury apartment in 2015 was $60,000 - $70,000, while average sales prices starts at $600,000 - $1.5M depending on the finishing and location; while in Abuja the rates for rents in choicest locations range from N4million-N25million and from N70million-N1Billion for sales in choice Locations according to Fine and Country Insight.

Due to the high costs of owning, leasing and managing a building – not to mention the inclination of Nigeria's legal system to favour tenants over landlords – most leases require two year's worth of rent to be paid up-front.

Source: Capgemini and RBC Wealth Managment Global HNW Insight Survey 2015.

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In 2015, some premium new projects (residential and mixed developments) such as the 13-storey Rose of Sharon Towers (1800 sqm), Kanti Towers (6,662 sqm), Civic Towers (11,350 sqm), Nest Oil's new HQ (9,900 sqm), Nipost Towers (13,860 sqm); all of which are located on Victoria Island were completed.

In 2015, a comparative analysis, showed that the average rental premium rate for the residences in prime locations was $290 per square meter. As such we designed a global standard for assessing the premium developments using our in-house matrix formula below:

a) Location - 35% b) Quality of Construction/Finish - 15%c) Configuration - 10%d) Size of Units - 10%e) Infrastructure/facilities - 15%f) Extra Features - 15% Total: 100%

2015 ASSESSMENT MATRIX FOR PREMIUM RESIDENCES

Property Name Location Quality of

Construction/Finish

Configuration Size of Units

Infrastructure /facilities

Extra Features

Total Grade

Centre Heights 27% 12% 9% 7% 10% 14% 79%

Sapetro Tower 33% 10% 5% 9% 11% 5% 72%

Vita Tower 32% 10% 7% 8% 10% 12% 79%

Nestoil Tower Residences

33% 14% 7% 8% 14% 15% 91%

Table 1: © Fine and Country West Africa Assessment Matrix Table

Eden Heights Towers, Victoria Island Lagos - Call: 08096000042 for inquiries.

Asokoro Gardens, Sunrise Hills, Abuja-Call 08096000046

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GRADE ‘A’ COMMERCIAL DEVELOPMENTS

There has never been a time when the Nigerian property space witnessed a colossal wave of premium office developments and investments as we now witness in major cities. Lagos, like New York, London, Paris, Johannesburg, Singapore and Hong Kong, has joined global cities with strong demand for Grade A office space amid vibrant corporate activity and expansion of middle-class households. The Interna tiona l standards being achieved in current developments arguably match these global cities. It is interesting to note that in 2015 alone, Civic Centre Towers, Nipost Tower, Temple Tower, NestOil Tower, Kanti Towers, Lakepoint Towers and the World Trade Centre collectively added about 80,000 square metres (sqm) of office space into the Ikoyi and Victoria Island and Abuja markets.

A recent in-house study developed by Fine and Country research team in 2015 revealed the assessment matrix for attaining a Grade A office status.

A S S E S S M E N T M AT R I X F O R G R A D E A COMMERCIAL/OFFICE DEVELOPMENT


In 2015, the occupants for major premium residential and prime commercia l spaces were dynamic businesses, multinational industries and financial institutions that require top brand positioning and desire to be at the very heart of the target market are the major occupants/lessees of the Premium commercial developments.

More Grade A stocks like the Heritage Place, a 14-floor, N19bn project; Africa Towers in Abuja and The Wings Office Towers, comprising two towers and approximately 25,500sqm, Bloombury Waterfront Towers are expected to be completed in 2016.

While in 2017, the Kingsway Tower, a high-rise building comprising offices, ground floor retail, restaurants and basement parking is billed for completion.

Civic Centre, Victoria ISland Lagos - Fully Leased

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GRADE ‘A’ COMMERCIAL DEVELOPMENTS

Comparative assessment of 6 sample commercial developments

Work, Live & Play - Call: 08096000042 for Inquires

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In 2015 the asking rental prices of most premium commercial leases were not met; so investors and developers had to strategically reduce the prices in order to achieve rent.

Factors influencing downward

pricing $700-$900/m2/P.A

Factors influencing upward pricing

$900 - $1000/m2/P.A

High Volume Lease Tenant risk

Tenant Compatibility Build quality and project contractor

Tenant to lease both commercial

and residential spaces

Long Lease Tenor

Anchor Tenants

5 KEY FACTORSS COMMERCIAL TENANTS LOOK OUT FOR IN

“GRADE A” BUILDINGS

Location How accessible is it key clients, key employees , the Proximity to compe��on and the Traffic count: cars or pedestrians

Build Quality The quality and green-savvy standards put into the design &

construction and the age factor (i.e less than 10yrs.)

Security & Parking How secured is it for high net worth individuals/clients and the

generous parking space available (including off-street parking)

Transportation Transportation accessibility and Proximity to Land, Water and Air

also Supplier proximity factor

Views Visibility access, the natural views (eg. The Atlantic ocean, and the

Ariel view of the environment)


FACTORS THAT INFLUENCED PRIME OFFICE LEASING PRICES IN 2015

In 2015, Lagos shouldered up to 65% of the country’s business activities, contributing up to 15% to national GDP. The commercial property market in Abuja was driven by governmental activities while Port Harcourt’s CRE was driven by it’s rice crude oil base

At the moment over 15 Grade A office complexes are under construction in prime locations across the country and are expected to be delivered in the next 2years

“Intelligent Real Estate practice is not complete without a robust Data and information management system for planning, implementation, monitoring and

evaluation of programs and projects.”

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GRADE A OFFICES, LUXURY APARTMENTS, RETAIL & HOSPITALITYWORLD TRADE CENTER ABUJA Call: 08096000042 for Inquiries

Average

Policy & Regulation Ÿ The Land Use Act (1978) continues to dictate and hinder

the land market in Nigeria. To date the objectives of the Act have not been achieved and further to this, the law has led to further distortion and abuse of citizens' rights to access and own land.

Ÿ The long period it takes to obtain development permit and to access funds for buildings

Others are:Ÿ Lack of easy access to land and high cost of land for building Ÿ Lack of effective inter-governmental collaboration (e.g.

Federal, State and local government) for investors building projects

Ÿ Prevalence of slums in all urban centres that require upgrading

Challenges Premium Real Estate Developers and Investors faced in 2015

Premium Real Estate Investors also faced some challenges in 2015; some of the issues were…

Access to financeŸ Mortgage finance in Nigeria is still in its infancy and

inadequate credit facilities for investors and where available, there is a very high interest rate.

Ÿ Imperfect mortgage system due to absence of a strong secondary mortgage market, lack of uniform mortgage underwriting standards and dearth/paucity of conforming Mortgage Assets

Ÿ Absence of the mechanism for effecting mobilization and channeling construction finance


“The establishment and development of title and mortgage insurance systems and institutions will ease the burden of

building premium residences by an individual alone.”

GENERAL HOUSING MARKET TRENDS 2015

In 2015, Real Estate market in Nigeria was valued at approximately N6.5 trillion and estimated to grow at an average of 10% over the next few years

Ÿ The sector contributed 7.57% to the GDP in the third quarter of 2015

Ÿ The country requires 17 to 20 million housing units to address housing deficit

Ÿ 80 percent of the adult population in Nigeria are living in rented apartments, compared to 20 and 25 percent in Ghana and South Africa.

Ÿ Nigeria has a low home ownership rate of 25 percent, lower than that of Indonesia (84 percent), Kenya (73 percent), and South Africa (56 percent).

Ÿ The major issues that continue to affect housing in Nigeria include inadequate access to finance, slow administrative procedures, high cost of construction and the high cost of land registration.

Challanges Premium Real Estates Developers and Investors faced in 2015

Reasons for growth trend in Luxury/Premium Developments in 2015

The Miatama Heights, Maitama Abuja - Call 08096000042 for inquires

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2016 AND BEYOUND


Ÿ The major growth drivers in the sector will continue to be accredited to: an increased inflow of foreign investment; increased institutional investment from local companies including PFAs and Mutual Funds; access to funding and credit; the growing population of High Net worth Individuals; and the targeted intervention of the Federal Government in the housing finance sector.

Ÿ Nigeria needs to provide the legal and regulatory framework that will attract private sector investors to develop affordable housing products particularly for the No- income, Low-income and Middle-income groups.

Ÿ Development of an effective land administration system to make land ownership available, secure, accessible and easily transferrable at affordable rates is non-negotiable.

Ÿ It is high time we as a country established and enforced building standards based on the National Building Code to ensure quality, functionality, aesthetics and safety.

Ÿ The time is ripe to develop and build adequate capacity, including the provision of infrastructure to support the housing sector, on a sustainable basis.

Ÿ An administrative, legal and regulatory framework for a more efficient and effective premium housing delivery system will springboard the sector.

Ÿ Promotion of the use of alternative building materials, green certifications and new technologies in premium housing delivery will boost the access to premium home ownership.

“Apart from the current economic conditions, the devaluation of the Naira and the continuous fall in International crude oil prices, etc were

factors that also affected the Nigerian premium property market” space in 2015”

The Orange Island Development, Lekki, Lagos Call 08096000042 for inquires

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Name of Property NESTOIL TOWERS

Location Akin Adesola Street, Victoria Island

Number of floor 15 Floors Mixed-use high-rise

Total Leasable Space Offering

29,904m

Facilities 9,904m2 of Lettable Office Space, 23 units of 1 and 2 bedroom apartments, 3,900 square meters of land, Multi-level parking, 4 commercial passenger lifts (13 persons/1000kg), 2 residential passenger lifts (13 persons/1000kg), centralized air-conditioning system, gymnasium, rooftop lounge/bar, café, reception and concierge services.

Rental $1,000/m2/P.A (Asking).

Year Constructed 2015

Contractor Julius Berger Plc

Name of Property CIVIC TOWERS

Location Ozumba Mbadiwe, VI Lagos

Number of floor 15 floors

Total Leasable Space Offering 21,368m

Facilities 8 Restrooms/floor, 4 Passenger Lifts,

Sewage treatment plant, Water treatment

plant, 2 No. Power generating sets

(500KVA each). Surface and suspended

parking on 3 levels for 180 cars, at 15

cars/Floor. Raised floor and suspended

ceiling.

Communication tower, plug n play internet

facility, Digital PABX. Motion sensor lights.

Automated Access Control.

CCTV System.

Rental $900-$1000/m2/P.A (Asking). $700-

$800/m2/P.A (Achieved).


Contractor Cappa D’alberto


2015 NOTABLE DEVELOPMENTS

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Name of Property NIPOST TOWERS

Location Adeola Odeku Street, Victoria Island.


Total Leasable Space 213, 860m

Facilities 8 Restrooms/Floor, 4 Lifts, Sewage

treatment plant, Water treatment plant,

4 Power generating sets of 810KVA

each. Parking for 99 cars. Plug n play

internet facility, Digital PABX. Motion

sensor lights. Automated Access Control.

CCTV System. Fire fighting pumps with

water sprinklers.

Rental2$800/m /P.A (Asking).

Property Currently Not Leased due to

Price quoted by Landlord. Market 2Demand insist on $600/m


Contractor YF Construction

Name of Property KANTI TOWERS

Location Adetokunbo Ademola Street, Victoria Island.




treatment plant, Water treatment plant, 2

Power generating sets of 725KVA each,

and 1 power generating set of 365KVA.

Parking on 1st to 5th Floor for 100 cars.


water sprinklers.

Rental2$800/M /P.A (Asking)


Contractor Cappa D’alberto

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Name of Property THE WINGS

Location Walter Carrington crescent, Victoria Island. (Waterfront Property).


Total Leasable Space 213, 500m


treatment plant, Water treatment plant,

2 Power generating sets of 1000KVA

each. Parking for 700 cars. Plug n play




water sprinklers.

Rental2$900/M /P.A (Asking).

Year Constructed Under Construction. To be completed by Q4 2016

Contractor Cappa & D’alberto Plc

Name of Property LANDMARK TOWERS

Location Water corporation drive, Victoria Island. (Waterfront)




treatment plant, Water treatment plant, 2

units of 1.1 MVA generator, 1 unit of 700

KVA generator, and 1 unit of 350 KVA

generator. Parking for 145 cars. Plug n play




water sprinklers.

Rental $900-$1000/m2/P.A (Asking). $700-

$800/m2/P.A (Achieved).


Contractor Nahman Construction

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In 2016 irrespective of the downturn in the economy, we anticipate and forecast that though the premium real estate sector will respond to both negative and positive economic sentiments this year, there will still be some measured activities with sustained developments and investments

Globally, Grade 'A' buildings command premium rentals, reflective of the costs associated with meeting these international standards. In a business environment like ours where there is pressure on costs and where corporate leadership is focused on reducing overhead, one could well ask how an individual or company can justify the move to a premier and apparently high cost facility? The efficiency, sustainability and competitive advantage premium residences and Grade A facility delivers overtime, makes the difference.

In our quarter 1 report for 2016, we will be expounding more on the impact of the current economic and political climate on real estate in 2016, the drivers for change in the premium space; shed more light on the opportunities that abound for investors and look at the critical factors that will transform the Nigerian Real Estate space and finally deep dive into what top notch experts in the industry feel will be the winning strategies that will shape the sector and sustain the momentum in premium real estate developments.

To get a copy of the report, kindly send a mail to [email protected],

Disclaimer This report is published by FINE & COUNTRY West Africa and it is meant for general information only. While we have deployed high standards in its preparation, we do not accept any legal responsibility for any loss or damage resulting from the contents of this report. As an all-purpose report, this material does not represent the total advisory of FINE & COUNTRY for premium developments. For full advisory and reproduction of this report in whole or in part please contact our Head office @ 13 Adetokunbo Ademola Street, Victoria Island, Lagos. TEL: 01-2710723, 08096000042; [email protected] www.fineandcountryng.com

REAL ESTATE OUTLOOK 2016


The Proposed Eko Atlantic Development, Victoria Island, Lagos.

08096000042

16

Call: 08096000042 for inquiries

mailto:[email protected],

http://www.fineandcountryng.com

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