Tuesday 10 April 2018 26 BUSINESS DAY Market in gradual rebound with significant increase in enquiries in Q1’18 Stories by CHUKA UROKO Characteristic of its slow reaction to changes in the wider economy, the real estate market recorded gradual rebound in the first quarter of this year (Q1 2018) several months after the economy exited recession and witnessed significant improvement. The market actually saw an increase in enquiries estimated at 10 percent in the last six months, but those enquiries could not translate into closed transactions or increased prices, leaving the property market and asset values largely unchanged. “We have really seen impact of the improvement in the economy on the real estate market, but that has not largely manifested in true transaction”, affirmed Gbenga Olainyan, CEO, Estate Links, in an interview, disclosing however that the number of square metres of space his company has rented out between June 2017 and now from majority of the A-grade offices they have in their books has exceeded all they did in the previous two years put together. Olaniyan stressed that eventhough the market is still not where it should be, there has been much more successful outing in the last six months than the previous two years combined. Besides that, he said, enquiries are increasing and, though these are not translating into closed deals, there is hope that in the very near future, transaction and sales will happen. “We are getting much more demand. In real estate, the reaction time is usually slow and I am talking specifically about A-grade commercial office space”, he said, citing instance of a company that Lessons as Sujimoto relives economic recession impact on real estate, developers After what was, in relative terms, a boom in the real estate sector within the period spanning 2014 to 2015, the succeeding years, 2016 and 2017, were a major turning point for players in that sector. Many of them, particularly developers, got their fingers burnt by a crippling recession. With the drastic fall in oil price at the international oil market, oil companies were forced to contract operations and rethink their housing needs; the galloping inflation eroded household and organisations’ income, while import activities collapsed due to high exchange rate at the foreign exchange market. All these combined to not only constrict construction activities and reduce demand , but also collapsed the property market, leading to near-zero demand, supply glut, high vacancy rate, rent default, loan cancellation, project planned to change office in 2013 but suddenly saw the fortunes of its business turning around in 2017. Such a company, he said, would have to wait before deciding on what to do next. “These are the kind of people we are seeing now coming to make enquiries about rents and the size of space available”, he noted. The residential segment of the market is telling similar story of gradual return to profitability. The market is not yet back to the 2014 and 2015 transactions, but the situation in the first quarter of this year cannot be compared to the same period in 2016 because the former is a lot better. This gives developers and potential investors hope of a better tomorrow. But there is a challenge. Rising construction cost in the face of low demand has compelled most developers to slow down to watch the market. “The last two units we still have to sell out of 15 units in our development are still selling at N50 million per unit which was the price at which we sold early last year when we were selling off-plan. That tells me that nobody wants to pay more than N50 million”, Olaniyan said. Continuing, he explained that if he was to replicate that development, clearly, the price of the units would not be 50 million again because of the rise in construction cost and so, he wouldn’t be in a hurry to do another one but has to wait until the market moves. “I see a situation where, because development has slowed down, the economy is recovering, money is trickling into people’s pockets, property prices which had been flat for so long, has to go up because a developer who borrows to build cannot sell at today’s revaluation and downward review of project sizes. For Sujimoto Construction Limited, a frontline developer playing at the high end market, it was a period of sober reflection, one during which the company was compelled • Ogundele price any longer”, he noted. From the buyer’s side, there has been a significant shift because, with the economy starting to pick up, there has also been a shift in enquiries and Olaniyan explained that if in a week early last year they had just three serious calls, now they were sure to get 10. “A lot of the prospective tenants are still inspecting, telling you they are raising funds, but one is sure that even in real estate people have hope”, he assured. The fall in the value of the naira relative to the US Dollars is still haunting and piling pressure on the retail segment of the market. Retailers are still struggling with dollar rents and a good number of them are closing shops at the structured malls and moving to stand alone houses. The mathematics is yet to add up for that sector. For instance, a retailer who was bringing in goods at $100 before the naira devaluation had N16,000 as his cost and so, he could sell for N20,000. Now, the same retailer is still bringing in goods at $100, but his cost has moved from N16,000 to N36,000, and the buyers are not yet ready to pay N40,000. So, the next thing for him to do is to leave the mall. So, the structured malls are losing local retailers. For the retail business, the story is different and unlike the commercial and residential markets where it is expected that rents will soon bottom out and stabilize, in retail, rent will only start coming up again when it bottoms out to where retailers’ naira can afford it and that will take another monetary policy change to happen. Even the foreign retailers are having challenges because they have to see buyers to make sales. to think outside the box and to consider strange and near-impossible options. Sijibomi Ogundele, the company’s MD/CEO, has a harrowing but inspiring experience to share which, it is hoped, will serve as a lesson on courage and doggedness in a challenging economy such as Nigeria’s. “I had dreamt and developed the biggest project in my life with $90 million to build the tallest residential building in Sub-Saharan Africa. I invested all my money, time and passion into something I believed in”, Ogundele recalled in a statement obtained by Business- Day at the weekend. The statement reads in part: Unfortunately for me, the economy was very bad and things became very rough. I had to let go the best people around me. There’s a way that life tries to snatch your dream away from you and suddenly everything you are doing looks incompetent. Some people told me that real estate is a difficult sector so it would be best for me to leave my passion and do something else. I visited my old-time friend’s water factory in Abeokuta and thought about venturing into the pure-water business. I even went back to Ijebu Igbo and visited some farms because it seemed agriculture and farming had become the new ‘oil’. Some people began convincing me to leave everything and deviate into something I knew nothing about (agriculture and farming). I even tried to sell everything I owned to move to New York City. I spoke to a successful Nigerian actor who had moved to Atlanta because of the steep recession. He said life was easier there, things were stable and I could access credit through a flexible banking system. I was confused and devastated, but I kept the words of Napoléon The Wings commissioned... Continued from page 25 IBMS is also designed to detect potential thieves as warning signals will be triggered if there are any irregularities from particular areas of the building and these features make it an IBMS-compliant building. The Wings is fully sprinklerprotected with sprinkler and firewater systems supplied via dedicated pumps and tanks. Each tower is provided with two pressurized emergency routes and a fireman’s lift, together with an analogue smoke detection and voice evacuation system. Separate digital pulse meters are provided to measure individual tenant’s electricity consumption. These digital meters are extremely accurate with negligible errors. Independent meters are provided for every floor and every tenant, in the unlikely event of meter failure. The building parades such features as dedicated jetty, restaurant and banking hall which differentiate it from its peers. Others are concierge, Wi-Fi connection throughout the building, cell phone reception boosters, LED lighting, motion sensors to all public areas, high surveillance CCTV systems, etc. It also offers rental concessions which include tenant improvement allowances and rent-free periods. Apart from these features and facilities, The Wings differs from its peers in its core design, shape and orientation which are configured to provide Grade A commercial office space with multi-tenant flexibility. “Tenants will appreciate the urban views from this high-rise building; there is flexibility and energy efficiency of the floor-plate integrated into the design coupled with amenities and lifestyle/workstyle possibilities”, Duke assured Hills book on replay in my head. I remembered that my present situation should not determine my destination. I told myself that running away wasn’t the definition of the Motomatics Philosophy I had created. The Sujimoto I know and advocated wasn’t a runaway loser, neither was it lack of focus kind of personality or company. I developed courage and refocused my life. I revisited my options and created Guilliano, the son of Lorenzo, the grandson of Cosimo the Medici. I conceptualised, planned and executed the project, even though I didn’t have all the money. In less than six months, though I am still not where I want to be, I am thankful to the almighty that I am not where I used to be. It’s been the most inspiring, most difficult and most challenging time for me. But now, I am thankful I didn’t give up, run off or lose hope.
Tuesday 10 April 2018 C002D5556 BUSINESS DAY 27