The demand dynamics for residential real estate in Lagos has changed phenomenally over the past few years. In the early 2000’s, landlords demanded rent in advance of 2 years or more. With increased exposure into the global market, the topic around “what the ideal housing system in Nigeria should be” is gaining traction. What we are seeing today, is a growing interest around the monthly rental system with a slow but steady adoption especially as private businesses are finding creative ways through financing services to achieve this. With consistently rising inflation rates, the average Nigerian’s disposable income is heavily impacted and their cash flow is becoming incapable of sustaining these bulk payments.
Outside the challenge of effective annual rent demand, another topic of concern which has gotten very little attention is the changing dynamics regarding how “the demand for houses in Lagos is changing by demographics and how developers should be responding. Data from the Lagos State Government estimates that more than 40% of Lagos population fall within the ages of 15 years to 45 years with forecasts that this number will grow to more than 50% over the decade[L1] . Our interaction with agents in Lagos shows a growing demand from this demographic (students, young professionals and mid-level executives) with a preference for smaller sized apartments. This opportunity in the market initially has not been captured but we are beginning to see property developments responding to capture this potential.
We conducted a survey in Q1 2022 sampling young people between the age of 20 to 45 years to understand their location and amenity preferences when renting an apartment in Lagos. Based on our findings, Lagos’ young population want to experience the hub of social activities, but the currently high rental rates at these locations have been a major barrier. The recurring question then is ‘how can developers with projects in the core business districts optimise for this market profitably?’ In this article, we will be discussing some of the survey findings with interesting insights for developers who may want to tap into this segment of the market.
Yaba, Ikoyi and Gbagada emerged as top 3 preferred residential locations by young professionals
45% of the survey respondents selected Yaba, Ikoyi and Gbagada as their preferred residential locations. We dug deeper to understand the rationale behind these choices and found that proximity to the workplace and other business districts alongside availability of amenities were top considerations. Although the commercial footprint in Ikoyi is growing rapidly, the region remains one of the most serene residential neighbourhoods in Lagos. Ikoyi also provides easy access to Lagos Island, Victoria Island and Lekki Phase 1. Yaba and Gbagada, with their proximity to the 3rd Mainland and Eko-bridge, also provide easy access to the commercial and social hubs, with a number of amenities including restaurants, banks and recreational facilities. While this presents an interesting insight on where Lagos’ young population would like to live, there is a mismatch with paying potential. 83% of the respondents earn less than N6m in gross revenue annually. Even though they would like to live in Ikoyi, their seemingly low-income level makes it difficult to live in this neighbourhood where 1 bedroom apartments rent around N6m or more per annum.
Well-built 1 bed and 2 beds apartments with good facility management has more allure for young people
From our survey, 65% of the respondents prefer renting 1 bed studio and 2 bed apartments. However, 80% of Lagos’ existing property stock consists of more than 3 bedroom typologies. Historically, developers in Lagos have been more focused on larger sized apartments from 3 bedrooms and more. Based on our interaction with agents, demand is tilting more to smaller sized apartments and response to meet this demand is through remodelling of existing large sized apartments into smaller ones. Landlords are increasingly converting their old 4 bedrooms into units of 2 beds and 1 beds, and we have also seen that the adoption of co-living options among young people is also increasing. Although developers have identified this shift in demand, supply is still largely limited. Another interesting finding from our survey is that quality facility management is becoming a key consideration, and the young working population can trade large size apartments for smaller sized alternatives that are well managed and closer to their workplace.
Amidst nationwide power shortages, availability of 24-hours power and security remains the most important amenity for Lagos young working population
With the heightened security challenge across the country, and the recent hikes in power tariff, it is not surprising that 24 hours security and power are the two most important amenities among young people who are renting apartments in Lagos. Almost 75% of the people we surveyed preferred to have 24 hours power and security in their apartment as against other amenities including gym/sport facility, laundromat, internet connection and supermarket. Unfortunately, the cost of electricity has increased phenomenally over the past few months, making it almost impossible for most residential estates to meet their agreed service level. The price of diesel in Lagos for instance, grew by over 150% from ₦303 in January to over ₦800 per litre by the end of March. In response, the average power tariff in serviced estates grew to almost double from ₦83/KwH (kilowatt hours) to over ₦140KwH.
Meeting the residential demands of Lagos’ young population is a tough nut to crack, but also an opportunity for innovative developers.
Considering the high cost of land and other construction input, it is almost impossible to build a decent project in prime neighbourhoods in Lagos. The outcome of our survey presents the most important things in the checklist of Lagos’ young renters. For innovative developers, there is still value that can be created within this market. However, this will require a lot of creativity to find a balance between cost and paying potential of this market segment.
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