The short rental market in Lagos has grown by 263% over the past three years

The short rental market in Lagos has grown by 263% over the past three years. This growth was mainly supported by higher demand for both long-term and short-stay apartments in the wake of the pandemic, according to Lagos Short let report from pan-African real estate data company, Estate Intel.

Ikoyi, Victoria Island, Lekki Phase 1 and Ikeja have emerged as the best short term rental centers in Lagos. However, Lekki Phase 1 stood out as an outstanding performer and maintained considerably higher occupancy levels at 80% compared to the 60% and 70% levels recorded in Ikoyi and Victoria Island respectively.

While the pandemic has accelerated the growth of the short rental market, Intel Properties notes that as a niche sector, the short rental market has been attractive to both operators and tenants for a number of reasons including the strong income profile it offers to investors and ease of access to tenants.

explained Tilda Moai, Research and Insights Leader at Estate IntelAnd the “The emergence of this niche is a trend that is deeply rooted in the Lagos residential market. It is essentially a backwards correction of the market unaccustomed to monthly rents. As such, the sector has benefited from pent-up demand that is not being met by the stagnant annual rental payments market. An option this flexible before.”

moai He further noted that in terms of returns, operators have continued to enjoy premiums of up to 200% due to higher daily rates compared to annual rents in the mainstream residential sector which ultimately resulted in a short-term influx letting operators into the market.

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However, the report further notes that while the market has experienced unprecedented growth due to the pandemic, the return to normal has made the sector vulnerable to the seasonal nature of demand as well as other external influences such as inflation, oversupply in the market and rising diesel prices. .

For example, diesel prices have had a direct impact on the short rental market affecting overall returns for investors and affordability of renters. Estate Intel’s interaction with market players indicates that an increase in diesel prices is likely to erode the high yield premium of up to 117% due to the additional monthly cost of diesel.

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In addition, the looming surplus in the market is forcing market operators to rethink their service offerings. With approximately 1,975 “short-rent” units expected to come to market, Intel Properties notes that this is likely to put pressure on existing rents especially converted housing stock leading to lower occupancy levels.

While these factors indicate a possible crash in the market. Estate Intel’s interaction with market players suggests there are many more layers to whether the market is booming or bustling.

Dolapo Omidire, CEO of Estate Intel, said, The question of boom or bust for the short rental market in Lagos is not straightforward. On the one hand, the pipeline currently accounts for about 30% of the stock; This large supply discharge from new purpose-built units expected over the next 24 – 36 months presents a threat to the high occupancy rates in the short stock within the converted residential homes. On the other hand, operators who have refined their offerings over time with a high-quality design and finish will find it easier to survive. For new investors looking to enter this space, our recommendation is to deliver rental units that can stand out in a high supply environment, or else their demand will be wiped out by newer, more formal inventory.”

“While the market outlook for the sector throughout 2022 is largely neutral, we expect higher inflation and operational costs to moderate the dramatic returns that this market has observed in recent years,” Omdir concluded.

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