Recent completions of prime grade office space and a sustained development pipeline is indicative of the strong confidence developers have in the prospects of Lekki becoming a commercial hotspot. Currently, much of the office space in Lekki is characterised by residential conversions and very few purpose built office properties. This is set to change with up to 6 new additions of prime office space in an around the Lekki Epe Axis. However, is better quality office space enough to convince companies to make the move to Lekki? And will the increase in supply be complemented with a similar increase in demand?
Before we look at the facts, here are a handful of the completed and on-going developments in the Lekki region.
Two arguments explaining Why It Won’t & Why It Will have been laid out. Share your thoughts after reading and let’s know which you support.
Why it Will
Ultimately: Affordable Rent + Quality Space = Kickoff
Tenants are looking for quality space on the Island without the hefty premiums that regions like Victoria Island and Ikoyi demand. Land prices in these regions are through the roof at N365,000/sqm (VI) and N290,000/sqm (Ikoyi), this contributes to the higher rentals offices in this region require. Seeing as prime grade space in these regions have been scarce in the past, demand pushed rentals to $850/sqm and $1,000/sqm in Victoria Island and Ikoyi. If a developer is able to provide quality space at a discount for tenants on the Island in a region like Lekki where his land costs will be reduced (N116,000/sqm), there’s a winning opportunity.
No. 8 Office Apartments on Rasheed Alaba Williams Street in Lekki Phase 1 can be used a case study. Affordable rentals which are almost 4 times less than those found in typical prime grade V.I. properties and good quality office space have reflected in exceptionally high occupancy rates (90%+) and the attraction of various technology, oil and gas, consulting and investment firms.
Lekki will be the preferred choice for Class B space (Prime amenities, but B location and price). The region holds promise for the mid-tier financial and professional services sector, the growing tech scene and other start-ups.
Why It Won’t
1. In Reality, Asking Rentals are Unreasonable
For the most part, asking rentals in many of these new Lekki office developments are not in keeping with their inherent value. This is bad news as a blue chip company would typically relocate to a 2nd tier commercial region like Lekki to save big on rentals. Secondly, high rentals are a quick disincentive for SMEs looking for cheap space. A prime grade office property in Lekki cannot demand the same rents as a prime grade property in Victoria Island. The tenant mix, amenities and access are just not the same. While some may prefer certain nodes for business specific reasons, in the larger picture those businesses will remain outliers.
Admiralty Forte shown above is asking for $600/sqm. Decent B Grade space in Victoria Island was on the market for $500/sqm in Q3. In this case, the product on offer doesn’t warrant the price asked, in other cases it is possible that it may.
2. Those Delivered are Still Empty
The new developments (Property 1 & Property 2) that were recently completed can be used as case studies. Though they are perfectly located at the corners of the 1st and 2nd Lekki roundabouts respectively, they have not acquired a single tenant. (Yet).
3. I’ll Settle for a B Grade Building in Victoria Island
I’d rather just remain in or move to an OK B Grade building in VI for the same rent, with better amenities, access and closer proximity to important businesses and nodes. Moreover, the large development pipeline of properties in Victoria Island and Ikoyi means a large supply of property will be coming onto the market around the same time. It is unclear whether domestic growth or international interest will be able to sustain over 200,000sqm expected in the next 24 months and this could mean an eventual downward adjustment in rentals. Herein lies an opportunity. Additionally, there are still many infrastructural and security concerns for properties along the Lekki Epe Axis.
What do you think?