Professional services, industrial, logistics top list of space users
New office space requirements increased by 29 per cent in second quarter of 2021 compared to first quarter in Nigeria and other Africa countries, according to Knight Frank.
This increased office market activity has been attributed to the ‘flight to quality’ trend that has seen businesses taking advantage of weakened prime office rents to occupy office spaces that place employee wellbeing at the forefront.
Data from Knight Frank indicates that the share of new office space requirements across the nine countries they are located in was dominated by professional services (29 per cent), Industrial and Logistics (16 per cent), financial services (14 per cent), healthcare 12 per cent and Non governmental organisations (NGOs) (8 per cent), who together accounted for almost 80 per cent of new office space requirements across Africa in Q2.
The countries are Kenya, Uganda, Tanzania, Zambia, Zimbabwe, Malawi, Botswana, South Africa and Nigeria. Knight Frank also observed that businesses that had previously put office requirements on hold due to the pandemic were reactivating their searches with landlords becoming more flexible by allowing for discounted rents and lease concessions such as increased rent-free periods in a bid to attract and retain tenants.
Across the 28 African cities Knight Frank monitors, prime headline office rents remained relatively resilient with 16 out of the 28 cities tracked experiencing rental stability during the review period. However, market performance continues to vary based on the country.
In Nairobi for example, prime office rents dropped marginally by one per cent Quarter on quarter (QOQ) due to lockdown restrictions imposed at the onset of Q2 2021. In addition, markets such as Western Cape and Gauteng in South Africa continue to see increased vacancy rates and downward pressure on prime rents, prompting landlords to offer incentives and discounts.
On the other hand, Nigeria recorded increased occupier activity in the market driven by office relocations from the Central Business District (CBD) to the suburbs, as occupiers gravitated to locations offering both better quality accommodation, as well as more affordable lease rates.
Furthermore, occupier activity in locations such as Tanzania is expected to recover underpinned by renewed investor confidence fuelled by the new leadership.
Nigeria has since resumed business as usual due to the economy being highly dependent on labour. Although, the Pandemic led to a lot of organisations closing up, it also let to new organisations being established, especially tech and logistics companies. There was a shift in the perception of shared office space hence, an increase in the demand. There was also an increase in residential property development including workstations and study rooms.
According to Associate Partner, Capital Markets, Knight Frank Nigeria, Tope Dairo, “ The Nigerian real estate market has witnessed a pivot to investment in the logistics/warehousing asset class buoyed by the COVID-19 pandemic. This sector had been underserved in the past, with multinationals settling for storage units for their warehousing and freight needs.
The logistics and supply chain sector are one of Nigeria’s fastest-growing industries, though still nascent. The Logistics/warehousing market in Lagos is expected to be serviced with 100,000 square meter space in fourth quarter, 2022, to meet the growing demand from the e-commerce and online service sector.
Another noticeable trend in the real estate market is the demand for land to develop data centres to meet the broadband internet demand of the young population in Nigeria.
Senior Researcher, Knight Frank Africa, Tilda Mwai, said: “The overarching trend across Africa’s office market is the continued flight to quality. Occupiers remain focused on occupying best-in-class offices that offer greater flexibility around lease terms.
“The desire to be in the best office buildings is driving up tenant release space in some cities’ Grade B buildings, which is likely to fuel greater disparity between the performance of Grade A and Grade B offices. That said, this presents a real opportunity for landlords of slightly older buildings. If refurbished to a new, modern standard, they can compete effectively for tenants looking for high quality offices,” Mwai said.