Lagos short-term rental market has grown by 263% over the past 3 years

The market for short rentals in Lagos has grown by 263% over the last 3 years. This growth was mainly supported by the increase in demand for long and short-term apartments following the pandemic. Lagos Short let Report by pan-African real estate data company, Estate Intel.

Ikoyi, Victoria Island, Lekki Phase 1 and Ikeja have become the main centers for short rentals in Lagos. However, Lekki Phase 1 emerged as a standout performer maintaining significantly higher occupancy levels at 80% compared to the 60% and 70% levels recorded for Ikoyi and Victoria Island respectively.

As the pandemic has accelerated the growth of the short-term rental market, Estate Intel notes that as a niche sector, the short-term rental market has appealed to both operators and tenants for a number of reasons, including the solid income profile it presents to investors and the ease of access to tenants.

Tilda Mwai, Head of Research and Information at Estate Intel, explained, “The emergence of this niche is a deep-rooted trend in the Lagos residential market. It is essentially a backwards correction of the market which is not used to monthly rents. As such, the sector has leveraged pent-up demand that was not being met by a rigid annual rental market.There simply wasn’t an option with such flexibility before.

Mwai further noted that in terms of yield, short-term rental operators continued to benefit from yield bonuses of up to 200% due to high daily rates compared to annual rents in the traditional residential sector, which which ultimately led to an influx of short-term rental operators into the market.

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However, the report further notes that while the market has seen unprecedented growth due to the pandemic, the return to normal 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-term rental market, affecting overall returns for investors and affordability for tenants. Estate Intel’s interaction with market participants indicates that rising diesel prices are likely to erode the high efficiency premium by up to 117% due to the additional monthly cost of diesel incurred.

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Additionally, an impending oversupply in the market is forcing market operators to rethink their service offerings. With around 1,975 “short-rental” type building units expected to come on the market, Estate Intel notes that this is likely to put pressure on existing rentals, especially converted residential stock, which will lead to their low rate. of occupancy.

While these factors point to a possible market drop. Estate Intel’s interaction with market participants indicates that there are many more layers to the question of market boom or bust.

Dolapo Omidire, CEO of Estate Intel, said: The question of the rise or fall of the short-term rental market in Lagos is not a simple one. On the one hand, the pipeline currently represents approximately 30% of the stock; this large supply dump of new purpose-built units, expected over the next 24 to 36 months, threatens the high occupancy rates of short-term rental stock in converted residential homes. On the other hand, operators who have refined their offer over time with a better design and finish will have an easier time surviving. For new investors looking to enter this space, our recommendation is delivery of rental units that can stand out in a high supply environment, otherwise their demand will be drowned out by newer, more formal stock.

“While our market outlook for the sector through 2022 is largely neutral, we expect rising inflation and operating costs to dampen the attractive returns this market has seen in recent years,” concludes Omidire.

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