Cause & Effects: Impact of Recent Vandalisations on Property Investment and Development

 

 

 

 

 

 

 

 

By Ayo Ibaru MRICS | COO / Director – Real Estate Research

 

Background

 

The youth of Africa’s largest black nation, Nigeria had entered into the second week of peaceful protests against police brutality and extra-judicial killings that had gone on for years. The Special Anti Robbery Squad (SARS) had been accused of ‘wasting’ this demographic for owning laptops, having braided hair and driving cars they were too young to afford (in the estimation of the accusing officer of the day). The national average age is 18.1 years and 43.69% are classified as youth. The leaderless #EndSARS protest steadily took on expansionist tendencies with social media influencers organising everything from food, first aid treatment and sanitation to the release of detained protesters and attracting international attention. The central authorities promised to end the police crack squad, starting with changing its name, but this was unacceptable to the protesters. The Nigerian army would eventually show up at the Lekki toll on the 20^thof October to end the protests.

Post 20-10-2020 Carnage

 

Nigeria’s 36 States: Looting Map

Source: Northcourt

 

In the ensuing bedlam, hoodlums took to looting and destroying commercial centres, police stations and correctional facilities in leading cities. Business owners could only look on as assets were looted. Insurance claims are expected to be in the billion naira range. The following buildings were either looted, burnt or damaged. Spar, Circle mall (Lekki), Adeniran Ogunsanya Mall, the Igbosere magistrate court and the Lagos Oriental hotel. GTBank, Zenith, FCMB, Polaris and Access bank branches were vandalised. The Lekki and Ikoyi tolls, the Lekki Concession Company, the BRT bus terminals at Oyingbo and Ojodu Berger (including 80 mass transit busses) and the Nigerian Ports Authority building, all in Lagos were also burnt. The Palms Mall, Ilorin – Kwara state was also looted.

The following are some of the casualties for Cross Rivers state: the Accountant General’s Office, TINAPA, the Nigeria Labour Congress office, the Independent National Electoral Commission building, the Cross River State Emergency Management Agency, the West African Examinations Council office, Calabar discount mall, First bank, Access bank and Ecobank offices, IDH Hospital, Cold Stone and Domino’s Pizza, Pensioners’ Office, University of Calabar’s main library, teaching hospital, microfinance bank, hotel/conference centre, and publishing house; Ecobank, Cross River State Water Board Limited (CRSWBL), federal psychiatric hospital World Health Organisation and Cross River State Health Insurance Scheme offices, Commercial Transport Regulatory Agency, Cross River State Property Investment Limited, Department of Petroleum Resources, Niger Delta Development Commission, Cross River State Roll back Malaria Centre, Commercial Transport Regulatory Agency, Cross River Agric Development Project, Peace Mass Transport Park, Ibedmore and UDEC Phone shops and over 60 public and private buildings.

The Lagos state government has estimated that ₦1Trn will be required to rebuild. Grade A retail and office assets had steadily corrected over the past 8 months, due to the impact of COVID-19 and related consequences. The lack of new entrants, asides the occasional neighbourhood development suggests a gathering mist of cautionary investor sentiment. There are however opportunities that could be identified within sub markets. Commercial property owners of Grade A office and retail space may have to revisit previously negotiated terms.

Source: Northcourt

Capital nursery/primary school, Technical College Yola, 110 tractors and farm implements were looted. Ogun state’s Asero farmers market and Osun’s Justrite mall were also vandalised. Access and First Banks, Industrial Training Fund’s office &the newly built National Immigration Service office, the National Identity Management Commission office, and shops in the Emene axis of Enugu state were vandalised. Magnetic Resonance Imaging (MRI), Computed Tomography machines, Digital Mammography, consumables and drugs estimated in billions were either looted or vandalised at the Kogi Central Medical Store. The Plateau State Government lost 22 facilities while Clear Estate in Abuja reportedly lost assets in excess of ₦100M. Adamawa state was no different, losing vehicles, earth moving equipment and buildings worth over ₦250M. With curfews announced in 13 states and the introduction of the army for added security, key economic areas gradually asphyxiating could only hope for a quick reprieve.

Mobility Review

Google measures mobility by tracking people’s movement to different locations (and time spent at these locations) over time using data sourced from connectivity to Google apps. The baseline or reference point used is the median of the corresponding day of the week, over the five-week period from January 3 to February 6, 2020.The mobility report used for our analyses focuses on mobility from the 6^th to the 24^th of October and onthree destination types within Lagos – retail, which tracks movement and time spent in places like restaurants, cafes, shopping centers, libraries, and movie theatres. Residential, which covers movement and time spent in places of residence as apartment buildings, gated communities and the like. Workplace mobility reviewed movement within and time spent in places of work.

Source: Google Mobility, Northcourt

Residential mobility peaked on the 22^nd with an increase in movement and time spent in residential areas by 26% when compared with the baseline figure established at the start of the year. For much of the weeks of the protest and the aftermath, most people as tracked by Google stayed indoors.

Source: Google Mobility, Northcourt

 

Office mobility was mostly in the negative when compared with the baseline established at the start of the year. As was the trend for most of the year due to COVID-19 movement restrictions, most people spent more time out of the office. For the period under review, there was a -68% deviation from the start of the year.

 

  Source: Google Mobility, Northcourt

 

Retail mobility for the period under review recorded the most decline on the 22^ndof October with a -70% decline. Again, COVID movement restrictions experienced earlier on in the year started a culture of staying indoors as consumers increasingly order in grocery items.

 

 

Source: Northcourt

Likely Short, Mid and Long Term Impacts

Short Term (Present to 6 months)

These disruptions will understandably create negative consumer sentiments, at least from a real estate perspective. The extent of carnage in many locations has created enough potency to guide the evolution of the development market towards more security conscious expressions.

As activity gradually returns to the affected areas, demand will follow and support property prices as much as purchasing power will allow. Some buyers are reportedly adopting a wait-and-see approach. The impact of this new level of insecurity, coupled with the state of the economy has made investing in Nigeria’s real estate market rather capricious.

Capital values in the luxury residential market could slip, albeit slightly, as not even the hallowed streets of Ikoyi were untouched in the protests. Land investments will remain resilient, solidifying its role as a sturdy investment. There are five possible directions in the short term:

 

• Flee: Capital flight may occur as investors liquidate real estate holdings and move to safer climes, relocate to western cities and pause on investing in Nigeria’s real estate market. There will also be a clear reduction in lease transactions which is a proxy for in-country relocations.
• Security: Higher security votes represent the logical and responsible thing to do under the circumstances – this can be expected in both public and private quarters.
• Renovations and remodelling: This will be a critical discussion point for market players who want to ride out the current storm. There will be the need to rebuild, and most likely to higher standards, not only from a safety and security standpoint but also with better aesthetics. Local history of similar riots and vandalizations suggests that on average, renovations are generally done to higher standards with a pull factor, thus reducing the cost of attracting consumers back to the malls.
• Insurance shakeup: The long-awaited consolidation of the insurance industry may just have receive a much needed shove. There will be higher claims, potential busts as some insurers may be unable to carry the weight of big-ticket claims; higher premiums, but also higher risk premiums for property insurance can be expected going forward.
• Fight: There will be optimistic and bullish investors who choose to seek out the best deals under the circumstances, picking up cheaper assets which promise super-normal yields in lieu of higher risk premiums

Mid Term (1 – 3yrs)

In the medium term, real estate professional services providers will be required to provide fit to purpose advisory and valuation services. Just as the property market’s downturn has been a much discussed issue, the requirements for a projected recovery will be costly and prolonged.

The test for investors will be to assess the right conditions and identify opportunities. Real estate returns are closely tied to economic performance. GDP growth is at -6.1% (as at Q2 2020), the lowest in over 15 years. Nonetheless, evidence from previous disruptions suggests that the real estate markets of well managed cities rebound following crises as was seen during the global financial crisis, Occupy Nigeria protests, and the recession. In the mid-term, we see the following:

 

• Community living: There will be greater emphasis and demand for residences within gated estates that enjoy communal living as this offers security services and leverages the experience, expertise and network of both the estate management company as well as the residents’ group.
• Security firms: It is apparent that there exist opportunities for new businesses in the security field. From physical personal security, cybersecurity, natural surveillance, security lighting, alarm systems and sensors to video surveillance, electronic access control systems, identification systems, and private military services. These new and changing requirements will change what space users demand and how developers build.
• Local investment: In the mid-term, it is expected that there will be a rise in local investment in commercial real estate to fill the gaps left by foreign investors who have repatriated their capital. Local capital tends to be more patient and it is this type of capital that is needed in nascent markets like Nigeria to create sustainable growth in the commercial real estate market.
• Proptech: As seen in other sectors since the emergence of COVID-19, many will turn to new technology (proptech) to leapfrog far-reaching and expensive difficulties created by the vandalizations
• Development activity: Reconstruction and remodelling of public and private assets destroyed by the vandalisations will create a significant buzz in development activities across the country. Such a wave of construction activity has the tendency to increase both labour and material costs if not brought under some forms of regulated

 

Accurately timing a market cycle is tough under normal circumstances, especially as liquidity tends to dry up. As the current downswing continues, at least in the short term, asset valuations may be adjusted which could translate into opportunities if investors take a hold position rather than sell at a discount. Investment opportunities will also depend on the degree of price correction within sub-markets.

Projections on Real Estate Contribution to GDP (%)

 

Source: NBS, Northcourt

 

Long Term (3yrs+)

State actors may have to recognize circumstances of the protest for the existential threat that it truly is and roll out effective social and economic programmes in partnership with the private sector. Investment in healthcare and education infrastructure and should be addressed on a more sustainable basis. But perhaps Scottish author, Charles Mackay summarised it best in his 1814 publication; Extraordinary Popular Delusions and The Madness of Crowds: “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Our long term projections are:

 

• Political and Economic performance:This will influence/determine the return of foreign capital. With the presidential elections coming up in 2023, much of economic policy will hang in the balance until objectives are announced.
• Redefined retail real estate market: Leisure and entertainment, sale of local goods; indoor sports, health, safety and security will be high priority.
• Reconfiguration of offices: It is projected that a good number of office blocks will become multi-use; having residential, retail and leisure embedded.  This is to allow for good property optimization
• Industry collaboration: Key players in the Nigeria real estate market will arrive at more reasons to collaborate in building a more resilient real estate market.

 

Conclusion

The vandalisation events that took place after weeks of peaceful EndSARS protests will evidently generate immediate, mid and long-term sentiments and responses as detailed in this report. A central theme that is reinforced with regards to property investment and development is the case for added security, property insurance and enhanced risk assessments.

But perhaps the argument for economic reforms and reductions to inequality will move up in priority of stakeholders and power brokers. Should this happen; the fears or fights these drastic events have heralded will lose hold.

Developers, financiers and property investors will return to their strategy rooms with a single aim to generate deft ideas that reverse any losses suffered. This may infer exiting positions at some point, but may also be a demand for higher yields based on upwardly reviewed risk premiums. A positive conclusion to note is that reconstruction and remodeling activities are poised to increase the sectors activities in seasons to come.

 

Ayo Ibaru MRICS is COO / Director – Real Estate Research.