Categories: Business

Lagos’ short let market: Lekki Phase 1, Ikoyi, VI emerge top hubs —Report

Just as Lagos short let market has grown by 263 per cent over the past three years, Ikoyi, Victoria Island (VI), Lekki Phase 1 and Ikeja have emerged the top short let hubs in the metropolis.

According to the report from Estate Intel, a pan African real estate data company, Lekki Phase 1 emerged as a stand-out performer, maintaining considerably higher occupancy levels at 80 per cent, compared to the 60 per cent and 70 per cent levels recorded for Ikoyi and Victoria Island respectively.

While the pandemic accelerated the growth of the short let market, the report from Estate Intel notes that as a niche sector, the short let market has been alluring to both operators and tenants for a number of reasons including the strong income profile it presents to investors and the ease of access to tenants.

A short-let is a well-furnished property which can be let from a few weeks to a few months.

Research and Insights Lead at Estate Intel, Tilda Mwai, explained that the emergence of the niche was a deeply embedded trend in the Lagos’ residential market.

‘It is essentially a backward correction of the market that is not accustomed to monthly rentals. As such, the sector has leveraged on the pent up demand that was unserved by a rigid annual rental payment market. There simply has not been an option with such flexibility before,” Mwai said

Mwai noted that in terms of returns, short let operators have continued to enjoy return premiums of up to 200 per cent due to the high daily rates compared to the annual rents in the mainstream residential sector ultimately leading to an influx in short let operators in the market.

However, the report further notes that while the market has seen unprecedented growth due to the pandemic, the return to normalcy has seen the sector prone to the seasonal nature of demand as well as other external influences such as inflation, market oversupply and rising diesel prices.

“Diesel prices, for example, have had a direct impact on the short let market impacting on overall returns for investors and affordability for tenants. Estate Intel’s interaction with market players indicates that the increase in diesel prices is likely to erode the high return premium by up to 117 per cent due to the additional monthly cost of diesel incurred, “the report read.

In addition, it stated that a looming market oversupply is forcing market operators to rethink their service offerings.

With approximately 1,975 units of ‘short let’ type build expected to come on to the market, the report noted that such supply is likely to exert pressure on existing rentals especially the converted residential stock resulting in their low occupancy levels.

“While these factors are pointing to a possible bust in the market, interaction with market players indicates there are a lot more layers to the question of market boom or bust,” the report read.

CEO of Estate Intel, DolapoOmidire, said the pipeline currently represented approximately 30 per cent of stock; adding that the large supply dump of new purpose-built units expected over the next 24 to 36 months remains a threat to high occupancy rates in short let stock within converted residential homes.

“On the other hand, operators who have refined their offering over time with higher quality design and finishing will find it easier to survive. For new investors looking to enter this space, our recommendation is the delivery of rental units that can stand out in a high supply environment, otherwise, their demand will be mopped up by newer and more formal stock,” Omidire said.

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