The real estate market saw a period of heightened activity in the first half of 2022, building on the economic growth momentum of 2021. According to the International Monetary Fund, Nigeria's economy is still recovering and is benefiting from the agriculture and services industries, with GDP growth reaching 3.6% y/y in Q1 2022. Except for the oil sector, all industries were growing, according to Estate Intel, which predicted that the real estate services and construction industries will rise by 5 to 10% in 2022.

The increased developer and occupier activity served to reinforce this market optimism. One of the most notable occupying operations during the time was possibly the opening of Microsoft's Africa Development Center. The tech giant, with its headquarters in Kings Tower, joined a group of other big occupiers, including Oracle, Ericsson, and Facebook, who have continued to support demand for office space.

However, the persistent issues of product mismatch, currency fluctuation, and growing inflation rates continue to have an impact on Lagos' real estate market. The performance forecasts for the various sectors are broken down below.


The office sector is probably going to stay weak.
Approximately 1 million square meters are thought to be the overall size of Lagos' official office space. Grade B makes up to 55% of the stock, whilst Grade A makes up just around 25% of the overall supply. Following its peak in 2014, the industry has been in a downward spiral for six years. Since then, the average rent across all building grades has decreased by 41%, while the average annual increase of supply is 10.8%. Due to this, the market has changed from being a landlord's market to a tenant's market.

As of now, the energy sector has continued to drive demand, with energy occupiers making up a bigger percentage of the office takeup in Lekki Phase 1, Ikoyi, and Victoria Island.

We anticipate that the energy sector's weakness and rising inflation will have a negative influence on demand, causing a further drop in office property rents across the board.


The residential market is starting to show signs of life, with a supply gap of up to 2.3 million units.
Given that demand and population growth continue to outstrip supply, Lagos' residential market has been experiencing persistent undersupply. A 1.49 million unit estimate is made for the present supply. On the other hand, we calculate that Lagos has about 3.8 million households, which leads to a supply shortage of up to 2.31 million units.

Domestic investors have primarily dominated large-scale institutional investment in the residential sector, focusing on building and selling properties quickly due to the extremely low rental yields. Furthermore, investor interest in the housing market has neglected the significant need for cheap housing and has instead concentrated on luxury real estate, where margins and returns on investments are often larger due to high construction costs.

However, this is quickly altering. Investor interest in the market is beginning to shift away from the high-income market, where there is currently an oversupply, and toward less-served demographics like students and young professionals, who have strong demand due to the market's size. This is leading to a positive outlook for the residential market.


Although Lagos's demographics are favourable for retail, the industry has continued to suffer from macroeconomic problems.
With a population estimated at approximately 20 million people, Lagos has a strong consumer base which bodes well for the retail sector. As such, essential retailers such as grocers and pharmacies have remained resilient in terms of market performance.

However, the demand for the retail sector as a whole has been hampered by high US dollar rents, a small tenant pool, rising building costs, and declining disposable incomes. As a result, Lagos' retail malls, except for Ikeja City Mall, continue to have low occupancy rates, which leaves little room for new developments to succeed.


The hospitality industry in Lagos is projected to experience a slowdown in expansion due to a market oversupply.
The hospitality industry in Lagos continues to be oversupplied, with a total supply estimated to be over 8,000 keys. The market has continued to experience a downturn in development activity in addition to the pandemic's effects. According to recent research by W Hospitality, Nigeria's development pipeline experienced the steepest decline 41 per cent, the highest decline within SSA. As a result, Egypt and Morocco passed the nation to reach the third place on the continent in terms of the number of rooms.

Surprisingly, compared to other places, the market has done reasonably well in terms of demand. As of April 2022, STR estimates that hotel occupancy in Lagos was 63 per cent higher than it was a year prior. This was somewhat higher than the 52 per cent in Accra and the 40 per cent in London.