The real estate sector like every other sector in Nigeria was severely hit by what experts described as the worst economic recession in more than two decades. Twelve months after the nation’s economy was officially declared to have gone into recession, the National Bureau of Statistics (NBS) on Monday 4th of September, 2017 officially released a report which revealed that the nation was in the clear, notching up the growth of 0.55 per cent in the second quarter of 2017.
Before Nigeria’s economic gloom, the real estate industry was one of the fast growing segment of the economy; however, the long economic decline resulted in falling household income, dollar shortages and a weakening naira which had an overall effect on the demand for residential and commercial real estate especially the retail and office market. Although the different segments of the real estate market also received their fair share of the ripple effect from the economic decline.
We will analyze four main parameters that gauge the recovery state of any economy, and how it affects real estate.
1. Increased Employment Rate
The decline in the nation’s economy due to recession led to reduced business sales and revenue decrease, which affected most businesses forcing some to close down and the more determined businesses had to lay off staff to reduce overhead cost. When there is a tightened money supply, unemployed workers and workers with low wages tend to save more and spend less, decreasing the demand for real estate space.
The current wave of recovery will catalyze the establishment of more businesses (foreign and local) which would result into more job creations and consequently culminate into demands for residential, commercial (office spaces) and retail properties across the nation.
2. Personal income rise
Income and expenditure are interrelated. When disposable income rises, consumption increases. Experts project a positive correlation between the gradual economic rise and the level of income of the citizens.
According to the theory of consumption, consumption patterns vary according to income levels of households; higher income household tends to allocate smaller percentage for daily needs such as food and clothing and higher spending on luxury goods. This statement implies that majority of household expenditure from a higher income is spent on rental expenses, mortgages, property development, new residential spaces, health etc. with the lower percentage of daily needs. It is, therefore, safe to predict a rapid rise in the demand for real estate property.
3. Sales volume in retail sectors
Optimism encourages consumption and economic growth. Increased income can create optimism, but so can expectations of increased income. The retail sector would begin to experience a rapid rise in the influx of consumers for their products as a result of positive anticipation of consumers and the rise in income level of a household.
This trend will lead to demand for more retail spaces. Hence more tenants will occupy vacant spaces in malls to adequately serve their customers.
4. Industrial production
The importance of the industrial sector in driving turning points in the economy cannot be over emphasized. Undoubtedly, the manufacturing sector was also affected by the recession which was evident by its struggling efforts to meet up demands. The high exchange rates due to the depreciation of Naira also affected the supply of imported raw materials for production.
The impact was not just on the manufacturers, but also on the retailers, their vendors, the companies that distribute the apparel, home furnishings, housewares, and other goods sold in the retail sector.
However, with the expected stability coming to the economy, analyst predicts a boom in the manufacturing sector which would result in demand for warehouse spaces of different capacity both for manufacturing and logistic companies. The Office market is also expected to be positively affected by the demand for office spaces.
Experts predict that more start-up businesses, manufacturing firms, logistic companies and foreign companies would rise, leading to demand grade-A office Spaces and cowork spaces.
Real Estate Unite 2017; Africa Biggest Real Estate Event
Although the data showed that the economic recovery was driven by improved performance of oil, agriculture, manufacturing and trade sectors of the economy, real estate expert are optimistic about the potential of the sector to drive sustained economic growth through development and construction activities that would open up the nation and attract foreign investors, providing employment opportunities, developing modern infrastructures (roads, healthcare facilities etc.) and new cities in urban areas.
The last has not been heard of the role that the real estate sector is playing in promoting a sustainable economy in Nigeria. Much more shall be highlighted and discussed at this year’s Real Estate Unite holding on the 17th and 18th of October 2017 at the Landmark Event Center, Victoria Island, Lagos.
For registration and more inquiries about the summit, CLICK HERE