OFFICE MARKET UPDATE LAGOS - Q broll.com/research. Highlights

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1 OFFICE MARKET UPDATE LAGOS - Highlights 12,600m 2 of new office space was added to the Lagos office market through key completions such as Civic Center Tower and 100 Pier Point. Asking rental levels in Victoria Island fell by 4% to $790m 2 /annum as increased supply continued to put downward pressure on rents, while those in Ikoyi remained flat at $965m 2 /annum. Despite a lack of policy direction, activity in the office market picked up in as transactions placed on hold prior to the elections were given the green light. 25,100m 2 is expected to be delivered in through key buildings which include Heritage Place and Victoria Tower. Additional downward pressure on rents is still expected in the remainder of with new deliveries intensifying the competitive environment. Disclaimer This report is published for general information only. Although high standards have been used in its preparation, no legal responsibility can be accepted by Broll Nigeria for any loss or damage resulting from the contents of this report. As a general report, this material does not represent the view of Broll Nigeria in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior consent from Broll Nigeria

2 6.5% 7.5% 9% 410,000m 2 25,000m 2 GDP Growth Unemployment Rate Prime Yield Grade A&B Stock Grade A under offer Market Drivers Although a lack of policy direction kept Nigerian equity markets in a state of distress, activity in the Lagos office market significantly picked up in the 2 nd quarter of. Transactions that were placed on hold due to political uncertainty leading up to the elections were thrown back into the mix once the landmark power transition was peacefully concluded. An estimated 25,000m 2 of office space was under offer in Lagos during, however few new leases were signed and a significant number of these transactions are anticipated to be concluded in the latter part of the year. Throughout the quarter, the technology and financial services sectors remained the largest sources of demand for prime office space. This demand emerged from a mixture of new entrants, firms expanding and relocations to better quality spaces. The oil and gas sector, which used to generate a large percentage of demand has contracted since 2014, due to cost cutting in the sector, while the financial services sector has expanded to partially replace it. Demand for smaller pockets of space emerged from Fast Moving Consumer Goods (FMCGs), professional services and the transport and logistics sector. SECTOR DEMAND FOR PRIME OFFICE SPACE While core office markets in Lagos each had different narratives during the quarter, the increase in activity was a similar theme that was seen across board. Though large recent and expected additions to supply are having a negative impact on rentals, other factors including the fall in oil prices, devaluation of the naira and recent political uncertainty are also having an effect. For landlords and developers of prime grade office space in these core markets this combination has placed strong downward pressure on rentals. Similar to Q1, this downward pressure was sustained in, especially in Victoria Island. Increasing interest in Nigeria s growth story is also generating more interest from well-known international firms, many of whom are now keen to establish a local office within Lagos. Virtual/host office space providers like Regus, who provide fully serviced office space for firms that require small office spaces (50 200m 2 ) appear to be capitalizing on this and are expanding strategically to prepare for an expected surge in demand. In and, at least 5,000m 2 of prime virtual office space will be added to the existing stock. As these international firms establish themselves in Nigeria, they will begin to demand slightly larger spaces of 250m 2 and above in offices of their own. PRIME HOST SPACE STOCK 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - M Q4 Q4 Q4 Existing Delivered

3 Nodal Overviews Core Markets Victoria Island added 10,350m 2 of new office space through the completion of 100 Pier Point on Ajose Adeogun Street and Civic Center Tower on Ozumba Mbadiwe Avenue. Average asking rentals in the commercial capital of Lagos fell for a consecutive quarter by 4% to $790m 2 /annum as more landlords responded to the additions in supply and the increasingly competitive environment. VICTORIA ISLAND RENTAL TREND $900 $800 $700 $600 $500 $400 $300 $200 $100 $ Q4 Q1 V.I Average Prime Asking Rental In total, it is estimated that up to 15,000m 2 of prime office space is currently under offer in this region with many tenants using newly found leverage to negotiate better leases. While the region remains the core for commercial activity in Lagos, large additions to supply are beginning to balance out high rentals. At the same time changing the chronic undersupply narrative, which was typical of the Lagos office market. negotiations during have seen sub $800 rents. While this region is not predominantly known for being a node for office activity, rental rates hold a premium above other regions because of the limited prime space available and the luxury identity the region has. At the end of, it is estimated that 9,000m 2 was under offer in Ikoyi, most of which is for ongoing developments that are nearing completion. This further illustrates that pre-lets are not typical practice in Nigeria and occupiers in the Lagos office market tend to take up more space when developments are either completed or close to completion. Secondary Markets Secondary office markets in Lagos including Ikeja, Lagos Island, Yaba as well as emerging nodes Oniru and Lekki have seen more rental stability over the past 12 months. These markets have not been as exposed to currency volatility evident in Victoria Island and Ikoyi because their rents are Naira dominated with most tenants earning Naira incomes. RENTAL VOLATILITY 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% In Ikoyi, no new offices were completed during this quarter, however imminent/early completions include BAT Rising Sun on Alfred Rewane which will add 1,000m 2 of lettable space as well as a relocation of British American Tabaco from Victoria Island to Ikoyi. Prime asking rentals in this region remained flat at $965m 2 /annum; however on-going % Change Ikeja Rent % Change Naira value to Dollar Source: Broll ( ) In, the Ikeja office market, which is dominated by B Grade office space saw increased activity. Multiple new fully speculative B Grade developments are seeing high demand from international and domestic

4 occupiers. Many of these occupiers are keen on this location for its proximity to industrial nodes and transport links as well as access to a large customer base. Rentals in this region have remained stable; however premiums may arise for properties of superior relative quality or those located within the Ikeja GRA (Government Residential Area). In general, rentals in smaller sub markets remained stable as the table below shows. Activity in prime grade space in these regions was minimal however developers are still keen on the viability of Oniru and the Lekki axis as a key node for office activity. Outlook Looking towards the latter part of, strong leasing activity is still expected. The current stock of prime grade space is expected to increase by 25,100m 2 across all nodes in. 700, , , , , , ,000 M 2 CURRENT STOCK AND DEVELOPMENT PIPELINE - Q4 Q1 Q4 Q1 6,750m 2 was also recently added to the Oniru office Stock Development Pipeline market through Landmark Tower. 60% of this was let to PWC. Asking Rental (Net Average Per Annum/m²) Y.o.Y Q.o.Q Region 2014 Q1 Change Change Ikoyi $1,000 $965 $965-4% 0% V.I $850 $825 $790-7% -4% Lekki* N35,000 N35,000 N35,000 0% 0% Ikeja* N30,000 N35,000 N35,000 0% 0% Lagos Island* N30,000 N35,000 N35,000 0% 0% Yaba* N18,000 N18,000 N18,000 0% 0% Abuja $450 $450 $450 0% 0% Source: Broll Database *Naira Denominated Market It is anticipated that the financial services and technology sectors will continue to be the largest sectors driving demand for prime grade office space in Lagos. Rental levels in Victoria Island are expected to see additional pressure, however downward pressure may begin to lose momentum at ~$700. Key completions in include Victoria Tower (7,500m 2 ) in Victoria Island, BAT Rising Sun (only 1,000m 2 up for lease) in Ikoyi and 47 Marina on Lagos Island. Investment Appetite Interest in investment grade office assets grew during the quarter, predominantly arising from South African property funds, international private equity firms and indigenous investors. The assets which are available for sale are relatively expensive as only a few have been put on the market for sale. The prime assets available for sale are seeing yields of 9%. Map Showing Nodes

5 RESEARCHERS: Nnenna Alintah Dolapo Omidire Muyideen Dosumu Opuda Sekibo FOR MORE RESEARCH: Nnenna Alintah E: FOR COMMERCIAL BROKERAGE: Abbi Junaid E: FOR INVESTMENT BROKERAGE: Bolaji Edu E: FOR SUB SAHARAN AFRICA RESEARCH: Elaine Wilson E: ABOUT US Broll Property Services Ltd., (Broll), is a subsidiary of Broll Property Group South Africa (Pty) Ltd., Africa s leading commercial property services group, founded in 1974 and now with offices throughout South Africa and a growing number of African countries including Nigeria, Ghana, Kenya, Malawi, Rwanda, Mauritius and Namibia. Established in 2004, Broll Nigeria offers commercial brokerage, retail leasing and management, research, advisory, asset management, project management, facilities management and other corporate real estate services in Nigeria. In addition to being a subsidiary of the largest pan-african real estate group, with access to resources across most of sub-saharan Africa, Broll is also affiliated with CBRE, the largest property services company in the world as quoted on the New York Stock Exchange. This partnership provides Broll with the added ability to give our clients the comfort of knowing that Broll s execution on its behalf will be carried out in an ethical manner, and with international standards and best practices kept firmly in view. HEAD OFFICE Nigeria 3rd Floor, The Octagon, 13A AJ Marinho Drive, Victoria Island, Nigeria Telephone: