Lagos short-term rental market has grown by 263% in the last 3 years

The Lagos short-term rental market has grown by 263% in the last 3 years. This growth was mainly based on the increase in demand for apartments for long and short stays in the wake of the pandemic, according to the Lagos Short Rental Report from pan-African real estate data company Estate Intel.

Ikoyi, Victoria Island, Lekki Phase 1 and Ikeja have become the main short-term rental centers in Lagos. However, Lekki Phase 1 emerged as a prominent player by maintaining considerably higher occupancy levels at 80% compared to the 60% and 70% levels recorded for Ikoyi and Victoria Island, respectively.

While the pandemic has accelerated the growth of the short-term leasing market, Estate Intel notes that as a niche sector, the short-term leasing market has been attractive to operators and tenants alike for a number of reasons, including the strong income profile you present to investors and ease. access to tenants.

Tilda Mwai, Research and Information Leader at Estate Intel explained, “The emergence of this niche is a deeply rooted trend in the Lagos residential market. It is essentially a backwards correction of the market that is not used to monthly rents. As such, the sector has taken advantage of pent-up demand that was not served by a rigid annual rental payment market. There just hasn’t been an option with this much flexibility before.”

Mwai further noted that, in terms of profitability, short-term rental operators have continued to enjoy return premiums of up to 200% due to high daily rates compared to annual rentals in the prime residential sector, which ultimately instance has caused an influx of short-term rental operators in 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 normalcy has made 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, impacting overall returns for investors and affordability for tenants. Estate Intel’s interaction with market players indicates that the increase in diesel prices is likely to erode the high return premium by up to 117% due to the additional monthly cost of diesel incurred.

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Furthermore, a looming market glut is forcing market operators to rethink their service offerings. With approximately 1,975 ‘short-rent’ 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, resulting in their low rental levels. occupation.

Although these factors point to a possible bankruptcy in the market. Estate Intel’s interaction with market players 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 boom or bust of the Lagos short-term rental market 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 in the next 24 to 36 months is a threat to the high occupancy rates in the short-rent stock within converted residential housing. On the other hand, operators who have refined their offering over time with higher quality design and finish will find it easier to survive. For new investors looking to enter this space, our recommendation is to hand over rental units that can stand out in a high-supply environment, otherwise their demand will be absorbed by newer, more formal stock.”

“While our market outlook for the sector through 2022 is largely neutral, we expect inflation and operating costs to rise to temper the exciting returns this market has seen in recent years.” Omidire concluded.

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