Commercial Real Estate in Nigeria – A dive into Coworking spaces

Around the world, Coworking spaces went mainstream in the early 2000s, becoming one of the fastest yielding asset class in commercial real estate. While the original intention of the idea was more to cater to remote working and nomadic entrepreneurs, providing coworking spaces fast became attractive to investors due to a shorter speed of execution compared with the conventional real estate investments and its characteristic ability of generating income from a plethora of value-added services.

In the last 10years, collaborative space usage has recorded an enormous growth in adoption and for the more profit-minded, growth in bottom line. A major driver of the initial adoption is credited to ‘Community/niche’ proposition; participants coworking, cooperating and co-creating with a common goal, vision or identity. But with growth came more real-estate-centric (all about selling desks and offices first) coworking spaces targeted at freelance professionals, remote workers, and small to medium enterprises (SMEs). Today, the growth is mostly credited to the ‘new-way-of-work’ resulting from the COVID-19 pandemic.

While some people have resumed working from their office buildings, a vast number around the world have stuck to the new reality. This reality has played out rapidly in Nigeria for a number of reasons. Some companies have chosen to cut costs by not renewing their lease agreements, while others have fully embraced the ‘work-from-home’ idea. Commercial real estate providers and investors have reengineered business models to keep pace. In our repurposing assets note, we made a case for repositioning non-performing assets, especially in the commercial real estate sectors in Nigeria for alternative uses which include the fast-growing supply of flexible /coworking space.

Co-working spaces have become so relevant today for the average young Nigerian employee and entrepreneur, because working from home can come with distractions and can be expensive. With Nigeria’s power supply and high internet costs, using a coworking space is more cost effective as collaboration allows a more efficient cost per user. Nigeria ranks among countries with the most expensive data in the world. These challenges and more made a strong case for flexible office providers in the Nigerian market. Before the pandemic, Lagos had not more than a score prominent co-working space operators, but today, there are many more, and over eighty flexible office operators nationwide.

Co-working has come to stay as experts say over 80% of the market potential is untapped. Nearly two and a half years after the pandemic struck, businesses all around the world are still establishing and settling into new work models that are comfortable and productive taking into account the fact that flexible work is now more than ever an integral part of employee satisfaction in the contemporary workplace rather than just a measure of curtailing the pandemic. With skyrocketing input costs, and office space rental and furnishing costs running in millions, executives are faced with the challenge of choice whether to invest such amounts in revenue generation expenses (cost-of-sale) or sentiment satisfying expenses. Many startups, entrepreneurs and freelancers cannot afford the choice to own a dedicated corporate office. Additionally, with the spate of undersupply of power and internet availability across the country, not many can also effectively work from home. According to the Lagos Ministry for Commerce, Industry, and Cooperatives, the estimated number of micro-businesses in Lagos State is 3,224,324. Additionally, there are over 11,663 SMEs operating within the space, most of which are offering white-collar services, and therefore require an office set up. There seems to be this love affair between Nigeria’s young entrepreneurs and co-working spaces. This is not only because flexible office space operators have found a way to solve their most pressing problems, but offer it at a more efficient per head cost and conveniently.

The business model is based on efficient cost per user but does that translate to profitability? According to a report by Next Move Strategy Consulting, the global co-working space market generated $6.89 billion in 2021 and is estimated to generate $24 billion by 2030, registering a compounded annual growth rate of 15%. In DeskMag’s analysis of profitable coworking spaces, most profit-focused coworking spaces breakeven in the first 12months, and maintaining a minimum level of occupancy makes this chance even brighter. The rates range from ₦2,000 per work desk to as high as ₦15,000 per desk per day, depending on the location and Tier of the facility. For context, Instant office space in Yaba charges ₦30,000 per work desk per month, while 989 workspaces in Lakepoint Towers, Banana Island charge ₦290,000 per month, and operates Monday to Saturday every week.  The costs of operation for administration, power, internet and janitorial services range from ₦500,000  to ₦3,000,000 monthly and this is without the initial cost of setup (space and furnishing) to be recovered over the determined useful life. While running cost is on the rise, with the different space options (Private office cabins, Flexible desks, Dedicated desks, Meeting rooms, and in some cases, restaurant service) coworking space providers leverage creative pricing strategies and value-added services to stay profitable.

How is the market performing and how can investors come in? Interestingly, coworking office operators do not necessarily buy or purpose build a facility. Investors can take advantage of long leases and repurpose existing assets for this purpose.  With occupancy hovering around 80% to almost 100% across key hubs in Lagos, there is no telling the opportunities that abound. There are also opportunities in other states beyond Lagos that investors can take advantage of to build footprint.

Let us know what you think about the flexible office operation in Nigeria. Need a more bespoke analysis, reach out to us at research@buyletlive.com. We would love to keep in touch! Follow us on LinkedIn and Instagram for more insights on the Nigerian real estate market.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top