The COVID-19 pandemic had set the stage for remote work among many employees, which became a permanent feature thereafter, exacerbated by removal of fuel subsidy, rising operation and staff transportation costs. The segment’s values continue to fall as offices come under pressure from hybrid working trends and heightened risk of obsolescence.
In a report recently, Northcourt had predicted that the adoption of flexible work arrangements may deepen, following the removal of the fuel subsidy. In the short term, increased pump prices will force firms to either increase transportation components in pay or adopt more work-from-home and hybrid work models.
It said some firms that had previously returned fully to working from the office may need to revisit work-from-office schedules to ease the immediate impacts of elevated transportation costs. Others occupying leased spaces will adjust their space use to factor in essential on-site requirements and occupancy rates will inch up slightly, especially in the grade B office market. Some businesses may reduce space requirements and even delay rent payments.
The consequences on the commercial real estate industry have been huge, with office managers and property owners struggling to make up for the lost revenue, while government agencies lose out on taxes.
The Guardian gathered the demand for premium office space is still moderate, especially among tech companies, while demand for generic office has dropped considerably. By the end of the second half of 2022, vacancy levels at prime or grade A office facilities had declined by 42 per cent at the beginning of the first half of the year to 24 per cent, representing a 57 per cent drop.
The development has increased office vacancy rate in many cities across the country, such as Lagos, Abuja, Port Harcourt and Kaduna, leading to conversion of empty space into residential buildings. The loss of the regular footfall in previously thriving commercial districts has left many dependent businesses, such as retail and hotels struggling.
The traditional drivers of demand in the office market have shifted downward, while transaction volumes and sizes continued to decline. In highbrow locations like Ikoyi and Victoria Island, asking rents for grade A office space were $700 and $630 respectively, down from $1,000 and $850 in the previous years.
The situation in the office space market is such that in 2022, there was no new project that was initiated in Lagos, which is home to this segment of the market, being the commercial nerve centre of the country. While the market volatility has settled down, the economic backdrop remains challenging, with rising inflation and interest rates, putting pressure on properties, which need refinancing and remodeling.
Currently, some office buildings in Surulere, Ikeja, Victoria, Ikoyi, Lekki Peninsula and Maryland are being converted into residences, while in Lagos central business district, some of the floors in high-rise buildings close of Balogun market are also being used for storage facility by the traders and importers.
Already, the state agencies are clamping down on some of the buildings and issuing fines to the owners. Officials revealed that most office conversions are in residential areas, where rent has hit the roof and houses are in short supply.
Professional estate agents and valuers differ on the current status of the market. While some admit that there are changes in office segments and managers are recreating them, others insist that renting is a better option and companies are still in search of offices.
Former Chairman, Niger State branch, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Prof. Adebowale Kemiki, said WFH has its advantages, which is reducing cost of maintaining offices. He said adoption of WFH would reduce demand for commercial offices and increase the number of voids in the commercial property segment.
“Before the fuel subsidy removal, there has been a drop in demand for commercial space. When the economy is not doing well, people hardly rent offices because there are no contracts, inflation is over 23 per cent, foreign exchange rate is high and multi-faceted issues are facing the economy. We have not had it so bad in recent times,” he said.
According to the Chairman, NIESV, Lagos branch, Mr. Gbenga Ismail, offices are not out of fashion and will not be. “So, offices will still be a necessary necessity. Indeed, demand has dropped on some multinational spaces and optimal demand is dropping for office spaces, however, we’ll still continue to get enquiries for office space.”
The Chairman of NIESV board of trustees, Chief Emeka Onuorah, who corroborated his view, said the market is not saturated and there is still demand for office space, adding that it is better to rent than converting such space. “If there are underutilised office spaces arising from WFH, the manager should advise management to take such surplus spaces to the market for rent, if they won’t be used for the foreseeable future,” he said.
However, the Managing Director, Global Property & Facilities International Limited, Dr. Muhammad Balogun, admitted that commercial office spaces have become a challenge to rent out after COVID-19 with a lot of WFH options for companies. He said companies are looking at other uses, such as hot desking, storage, meeting rooms/event places and entertainment.
He said conversion to residential is not prominent like those being used as retail, entertainment and shared offices. “Globally, there has been remodelling of spaces with other facilities to encourage employees to come to the office. Developers are also consulting before developing or leaving the full internal structure for companies to decide how they want to structure it, Artificial Intelligence is also playing a role now with the use of 3D virtualisation,” he said.
Balogun suggested that the floors should be broken into smaller units to attract more users, made more flexible, open to use as retail entertainment and sports, storage, hot desking and virtual offices.
Ismail, who doesn’t see long-term reduction in demand, said: “We are yet to fulfill optimal demand requirements. The immediate thought will be for online marketplace for short- and long-term home stays and experiences, as well as work spaces. So, going to conversion now is too early.”
Another estate surveyor, and Chief Executive Officer,, Kings Court Realtors, Mr. Emeka Okoronkwo, said people are opting for WFH, which is a cheaper alternative without identifying they’re not working at full capacity and generating enough revenue.
He urged state governments to emulate other global cities, where the authorities have made a conscious effort to rebirth city centres by engaging with property owners to retrofit office space for proximity of living and co-working arrangements. He cited Lagos Island business district, with all the elegant high-rise buildings that are almost dead with 12-hour activities.
Okoronkwo appealed to the government to embark on urban regeneration in the district and offer incentives to property owners to recreate their buildings with living space, gym and other entertainments, as the millennial wants to live in the central areas.
SOURCE (THEGUARDIAN)
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