The Guardian Newspaper November 4th, 2013.
New cities are being developed in different parts of Africa. These cities are designed to redefine Africa’s urbanization as they are typically featured with high rise state-of-the-art buildings and landscaped streets, with basic amenities such as 24 hour electricity and water supply. Examples of these developments are Konza in Kenya, Appolonia and King City in Ghana, Tatu City in Kenya, La Cite du Fleuve in the Democratic Republic of Congo, Hope City in Ghana, Kigali in Rwanda and Eko Atlantic City in Lagos, Nigeria.
It is hoped that these developments, the Eko Atlantic City inclusive, would become the standard for urban areas all over Africa. These laudable projects have affected their respective local markets and the focus of this paper is on the impact of the Eko Atlantic City project on the real estate market in Nigeria, with particular reference to the impact in the Ikoyi and Victoria Island areas of Lagos State. The Eko Atlantic City, sitting on a land area of about 10 square kilometers, is currently being built on reclaimed land from the Atlantic Ocean, along the Bar Beach shoreline in Lagos, Nigeria. Described as the ‘most impressive urban development project in Nigeria,’ the Eko Atlantic City is planned and developed off the coast of Lagos alongside the Bar Beach end of Victoria Island.
Protecting the shoreline of the Eko Atlantic City from the pounding waves of the Atlantic Ocean the “The Great Wall of Lagos” which is also being developed at the same time as the land reclamation is taking place. Hence, the Eko Atlantic City project does not only achieve the environmental goal of reversing coastal erosion, but is also set to relieve some of the pressure on land and resources within Lagos State.
As a new city, the Eko Atlantic has been planned as a home to about 250,000 residents and the workplace of an additional 150,000 people. The Eko Atlantic City is spread over well-planned districts – Ocean Front, Harbour Lights, Business District, Eko Drive, Marina District and the Avenues area. The entire development is designed to include waterfront areas, tree-lined streets, an efficient and integrated transport system, and mixed-use plots that will combine residential areas with leisure, commercial and retail facilities. It is envisaged that when completed, Eko Atlantic City will enhance the status of Lagos and create a new and stronger financial hub for the whole of West Africa. The project is actively supported by the Lagos State administration while the multibillion-dollar investment is provided by private investors.
Currently, land reclamation work is on track and over 50 per cent of the reclamation work has been done. In fact, some investors in the project have begun off-plan marketing of their respective buildings and some have even commenced the construction of the foundation for their buildings. It is estimated that by the time the project is completed, 140 million tons of sand, (approximately 95million cubic meters) would have been moved into position to from the platform on which Eko Atlantic City will be built.
With the mixed-use features of the city, the Eko Atlantic City is designed to be self-sufficient, with state-of-the-art buildings and facilities. The project has generated a lot of attention from both individuals and corporations alike. Many are keen on being part of the experience and this has spiked interest and demand for space in the City. Notable national and multi-national companies are some of the major banks in Nigeria – FCMB, First Bank, Guaranty Trust Bank, corporations such as Afren Plc. and Satellite Oil and Gas, have bought lots for development within the Eko Atlantic City long before the reclamation process made substantial progress.
Some of the Corporations who have bought into the scheme plan on building their offices in the city once the reclamation of land is completed and construction commences. Investors who have also bought into the project have plans of developing commercial and residential buildings for lease or purchase to the public. Thus, the supply of real estate would be boosted with the Lagos real estate market. Whether this would lead to a rise or fall in prices (both sales and rentals) is to be examined further. Economic theories show that as supply increases to meet demand, then prices should fall. However, with real estate, this is not always applicable as prices are not solely dependent on supply but also on other factors such as location, quality and type of buildings.
Ordinarily, the addition of real estate created by the Eko Atlantic City should further increase the total vacancy rate within the neighbouring areas of Ikoyi and Victoria Island. However, we expect that the Eko Atlantic City upon completion would have an edge over the existing real estate in Ikoyi and Victoria Island, especially Victoria Island. This is because we expect that apart from the fact that the buildings are new and are of world-class standards, they would be situated in a well-planned environment with facilities and infrastructure that are in excellent condition, such as has never been known in Nigeria.
In all, we expect that the Eko Atlantic City would command the highest rental and sale prices in the local real estate market. We also anticipate that the demand for these buildings would reasonably match supply, provided that the rental or sale prices of these properties would not be so high as to be considered unrealistic.
Currently within the Victoria Island/Ikoyi axis, there are commercial spaces that command rents as high as $1,100 per square meter per annum and residential apartments whose annual rents are above $130,000. Typical examples are the Maersk Building in Victoria Island and the Ocean Parade apartments for both commercial and residential properties respectively.
Real estate practice reveals that despite the current void in the real estate market, there is a constant search for good quality accommodation for retail, commercial and residential properties especially by multi-national organizations. It is hoped that the Eko Atlantic City would have properties that would meet this need. There is also the anticipation that the local populace within Lagos would be able to afford accommodation in the City. This anticipation is supported by the fact that the Nigerian economy (specifically Lagos State) shows huge potential of increasing in the near future. It has been projected that the economy of Lagos State would rival the economics of some African countries, if the current governmental projects are executed as planned. Therefore, with a robust economy, there is the expectation that the per capita income of the individuals within the State should increase and they would therefore have effective demand for real estate accommodation provided in the Eko Atlantic City. Existing, buildings in Victoria Island and Ikoyi are likely to experience a fall in sales and rental rates as they become less desirable relative to those in the Eko Atlantic City. The existing structures would compare unfavorably with those in the Eko Atlantic City in terms of age, structure, facilities, location and tenant mix, just to mention a few.
Despite these, we expect that a few buildings with outstanding features and exclusive locations within these areas would be competitive as they would hold some appeal to occupants. Although the Eko Atlantic City would come up in the near future, there would still be some companies that would prefer to stay in Ikoyi due to its relative proximity to the Lagos Mainland, which could be a major factor in their operations.
Besides, with the likely fall in prices, we anticipate that some corporations would find it financially viable to remain in Victoria Island and Ikoyi, taking into consideration the fact that a larger population of people are poor. The commercial properties in the City may fare better than the residential properties, except the prices of these buildings may be in a range that can be afforded by the populace. If the prices of the residential buildings in the Eko Atlantic City are priced to reflect their likely luxury status, then they would be out of the reach of a large part of the current population in Lagos. We currently have people who commute from the neighbouring state of Ogun to Lagos as rents in the former are cheaper than the later They do not mind the time spent in transit, which could stretch into several hours at peak periods of traffic. People who currently live in Lagos mainland are likely to move to apartments in Victoria Island and Ikoyi due to the fall in prices in these areas.
As the property market expands and the type and quality of buildings within the local market evolves, it follows that the price of real estate as we know it today would likely change. In the Nigeria Market, the real estate sector is hampered by paucity of information and a low reliance on information technology in practice.
With the redefinition of the real estate market by projects like the Eko Atlantic City, we expect that the real estate practice would expand and specializations would take place. Areas such as facility management, real estate risk management, real estate investment and financial analysis-to mention a few-would be the toast of the day. In our practice already, post the global financial crisis, the real estate practice has witnessed a greater demand from our clients in the verification and explanation of the real estate information we supply. Valuations are more explicit than ever before and we have adjustments to our valuation methods, which incorporate some financial standards as supported by the IFRS. These changes which have already caused a change in the way real estate is practiced and this demand for more professional services has spread throughout Africa. It is no longer enough for a real estate practitioner to have the basic knowledge of real estate practice without some knowledge (no matter how small) of business management and financial analysis.
New cities present us-real estate practitioners-with the challenge to change and up our service delivery in all aspects of the profession. Our expertise would be heavily relied upon as the developers and investors as well as the government would rely on our advice on whether to proceed with the creation of the new cities and their management thereof. There would be a greater reliance on real estate professionals (as well as on other related professionals) to provide advice on the impact of a new city to the local economy, for feasibility and viability appraisals on real estate projects that incorporate some element of financial modeling, to advice on the prices the different local property markets would support for their proposed developments within these new cities, to expertly manage the properties and facilities in the cities and have strategic marketing schemes through which the different properties would be introduced to prospective tenants and/or buyers.
It is most likely that the new cities could put pressure on the older cities to improve on their real estate and infrastructure planning, provision and management. For instance, in the case of the Eko Atlantic City and its effect on the surrounding neighbourhoods of Victoria Island and Ikoyi, we expect that the buildings already existing or being developed in these areas would have modern facilities in order to remain relevant in an increasingly competitive environment. Currently, there are two upcoming commercial buildings that are LEED compliant; one in Ikoyi and the other in Victoria Island- the Heritage Place and Nestoil Towers respectively. These are buildings, which are in a totally different class as they represent pioneer green real estate commercial buildings in Nigeria. We also expect that infrastructural facilities such as roads and electricity supply would have to improve, for these areas to remain relevant. Local real estate practice would experience a boost as aspects of the profession (such as facility management) would have to come up to speed with the rest of the would as the resources to manage the buildings in these real estate markets would either be available locally or we would experience an out-sourcing of our businesses to foreign firms. In Nigeria, we have already experienced the outsourcing of the management of our large retail centres to individuals from other countries because there is no local competence for the management of same, especially since the retail property type is a relatively new and emerging one.
New cities generally cause a change in the trend in local real estate supply and practice. The supply of new properties in turn causes a change in the price trends which affect occupancy rates. Real estate practice is also evolves as clients demand more technical skills from practitioners.
It is therefore, time to act. We need to improve on our skills and professional competence, in order to remain relevant in the changing real estate scene, caused by the emergence of new cities. A repeat of Kilamba City in Angola should be avoided at all costs. This is a situation where a city designed for about 500,000 people lies vacant because the local economy cannot support the rates for which the apartments can be leased. There is therefore a need for real estate professionals to step up to the challenges and provide appropriate advice to investors and developers alike on the rental and sales price trends and cycles, so as to appropriately match demand with supply. With the help of real estate professionals who provide the right guidance, then our real estate markets would expand, our cities would expand, our economies would grow and the positive change would be experienced by all.