There has been a considerable drop in the activity of the Nigerian formal retail leasing market in the second half of 2022, according to a recent retail report released by Broll Property Group, an African commercial property services company. New leases signed in both core and secondary retail sectors plummeted by 53 percent from 7,611 in the first half of the year to 3,544 in the second half of the year, as per Broll’s report.
Notwithstanding the stability of the underlying market conditions, the retail industry felt the effects of the widespread spike in energy costs since many businesses are experiencing financial problems or uncertainty as a corollary of this. Resultantly, there has been a drop in the demand for new leases, given that businesses seek cost-cutting measures. Another contributing factor is the growing popularity of internet shopping among Nigerian consumers, which may be prompting some businesses to prioritize online sales rather than retail sales space.
Deregulation of fuel prices in Nigeria led to a surge in diesel prices.
It was predicted in the report that a decline in new lease activity may have been partly triggered by the overall economic slump or a dearth of investors’ confidence. But nonetheless, despite a strong waiting list in the retail sector, rental prices in the secondary market remained stable. Even while retail as a whole is in decline, there are still some sectors where demand is holding steady. Food and beverage, mobile phones and accessories, health and fashion, and home furnishings have all remained among the leading firms driving demand for retail space.
The steady demand rate of these sectors indicates that they are tenacious and continue to exhibit strong prospects amidst the market slump. Dramatic increase in energy costs in the previous year is said to be the aftermath of the Russia and Ukraine war. Still yet, the deregulation of fuel prices in Nigeria led to a surge in diesel prices by 183.7 percent, from N288 per liter in January 2022 to N817 per liter in December 2022, as reported by the National Bureau of Statistics. This unexpected spike in diesel prices, which drives most of Nigeria’s industrial and commercial activity, sent shockwaves across the country’s economy, affecting businesses of all sizes.
Rental rates in both primary and secondary areas had remained stable.
According to the report, the rise in energy costs was also one of the factors contributing causes to the country’s inflation rate, which is at its highest level in 17 years. The Broll research also showed that rental rates in both primary and secondary areas had remained stable. Conversely, in the primary locations of Lagos and Abuja, achieved rent increased by 35.5 percent in H2 to $56/m2/annum from $35/m2/annum in H1.
In addition to the rise in energy costs and uncertainty economic activity, the increase in rent may have contributed to an increase in the number of dropouts from the core market. The report found that the secondary market had not altered and that, with a few exceptions in the central area, all transactions had been settled in local money (naira). Broll analysts said that a decrease in the national vacancy rate of one percent in the conventional retail market may be seen as an indication of growing demand in the sector.
Many reasons contributed to the decline in trading activity.
The analyst, however, reported a decline in trade rates from 91 percent in the first half of the year to 84 percent in the second. Many reasons contributed to the decline in trading activity, including market volatility, changes in customer preferences, service interruptions, and increasing competition. If market volatility persists, the report predicts that both new leases and departures will increase until the market stabilizes. More importantly, given the election results, if the present economic situation persists, landlords may ultimately wind up yielding more and offering more incentives to keep their existing renters.