Nigeria Now Ranks Among Africa’s Most Expensive Luxury Rental Markets
The daily rental market in Nigeria is becoming one of the most costly markets in Africa. But what is the driving factor behind this?
For years, luxury rents have been rising in Nigeria, but the latest ranking brought the trend into the spotlight. That’s great news for property investors but poses an interesting question for investors in Nigeria. Which African countries have the most expensive luxury rental markets?
What brought the nation to this point?
After all, luxury housing is just a part of the real estate sector. However, even in the face of economic uncertainty, rising construction costs and affordability worries across the housing market, the high-quality rental property remains in high demand.
If you read past the headline, you will discover that the answer is actually quite simple.
The luxury real estate market is not like the standard real estate rental market. For a middle-income tenant, even a rental rate hike might not be enough to push them out of their home. But for a corporate executive moving to Lagos, that’s a different story. In the same way, a multinational firm looking for accommodation for its expatriates is more often than not more interested in quality, location and security rather than cost.
Consequently, there is a strong demand for high-quality properties. Which has been remarkably consistent.
It still appears to be a strong demand, and rents have been steadily rising.
However, it is not only demand that is at stake.
But the truth is that the supply of real luxury homes has not been able to outpace the demand for luxury lodging. New professionals, investors, diplomats and returnee Nigerians enter the market looking for houses that abide by international standards each year. But it is not always simple to discover properties that have the modern conveniences, solid infrastructure, prime locations and professional management.
This means that the best properties are in hot demand.
If there are more tenants in search of high-end apartments than there are units available, landlords have leverage in determining the prices. But if a landlord is able to exercise his pricing power, rent is sure to increase.
This is what is going on in some of the most sought-after residential areas of Nigeria.
For instance, pick Ikoyi.
It was once mainly a residential area. But it has since become one of the most coveted luxury addresses in Africa. The area has been transformed into a hotspot for high-buying apartment renters. With the construction of waterfront developments, luxury apartments, smart homes, and exclusive gated communities.
Meanwhile, Banana Island, nearby, still has some of the highest rates of rentals in the country.
But it’s not the end of the story.
The demand for Victoria Island is also on the rise, due in part to its location near the corporate headquarters, financial institutions and international businesses. Living near the office is not the only thing that’s easy for executives who spend a lot of hours driving around Lagos. Rather, it turns into a requirement.
As a result, tenants are willing to pay high tenancy rents for apartments in these prime areas.
But yet another element has unobtrusively lifted rents even higher.
The construction industry has experienced a dramatic increase in costs in recent years.
The price of a luxurious apartment today is much higher than it was a couple of years ago. The cement prices have gone up. The price of steel increased. The exchange rate has affected the cost of imported furnishings. Even the provision of basic facilities like the power system, water supply, elevators, and security systems calls for greater investments than ever before.
Well, developers don’t bear those costs entirely, of course they don’t!
They charge according to the new developments to recover their investments and to keep their businesses profitable. Higher rents as a result later on mean higher development costs.
And the trend is even more prominent when the project is set on top land.
One of the key factors of high real estate values in Lagos is land scarcity.
While the expanding cities have land in the periphery to acquire, a prime district like Ikoyi and Victoria Island has very little land available for large scale development. In other words, the demand for land continues to rise, but there is a relatively limited amount of land available.
The imbalance helps to drive up prices.
The higher the land values, the more costly the development. When development cost goes up, the renter’s expectations go up. As rents go up, so too does the market reset over time.
But it’s possible that the most fascinating part of this trend is the source of demand.
There are many luxury tenants that are not the conventional renters. Rather, they feature multinational firms, diplomatic missions, international agencies, oil and gas executives, and Nigerians of the diaspora who have come back after years in other countries.
Generally, these groups are looking for convenience, prestige, security, and lifestyle.
For them, a luxury apartment is more than just a place to sleep. Instead, it is used as an expression, an extension of the workplace, the place to network, and, in some instances, as a temporary residence that has to be up to international standards.
Then things like 24-hour power, security, swimming pools, gyms, concierges and smart home technology are a must.
More premium tenants are looking for these features, and developers are keeping investing in premium projects, all while minding the cycle of higher rent prices.
