OFFICE MARKET UPDATE LAGOS Q4:2016. broll.com/research. Highlights

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1 OFFICE MARKET UPDATE LAGOS Q4:2016 Highlights For the first time in 8 years, the Organization of Petroleum Exporting Countries (OPEC) agreed to cut crude oil production to 32.5 million barrels per day; a cut which Nigeria is exempt from. The Nigerian economy continues to face headwinds reflected in the inflation and GDP rates. The most recent inflation rate stands at 18.55% for December 2016 whilst the current GDP growth figure is -1.30% for Q4: ,400m² of A-grade office space was delivered to the Lagos office market with completion of The Wings Office Complex in Victoria Island and Lake Point Towers in Ikoyi. Over 30,000m² of office space is expected to be delivered in the next 12 months, adding to an already over supplied market. Occupiers are cutting back on their office size requirements and are looking to take advantage of rent reductions in better quality buildings in prime locations. Additional downward pressure on rentals is expected throughout 2017 given the expected completions which will intensify competition between landlords. 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 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 % broll.com/research -1.30% 13.9% ~10% Approx. 460,000m 2 6,300m 2 Q4 GDP Decline Unemployment Rate Prime Yield A- & B-grade Q4:2016 Leased Market Drivers The Nigerian economy faced significant headwinds in 2016 as the fall in global crude oil prices triggered a FX scarcity which drove the inflation rate to a 7 year high in December. Inflation ended the year at 18.55%, 8.93% higher than it started the year in January 2016, constantly exceeding the Central Bank of Nigeria s (CBN) single digit target range of 6% 9% Inflation Rate (%) Source: Nigerian Bureau of Statistics The global fall in crude oil prices attributed to the country s first recession in 30 years. The latest GDP result released by the Nigerian Bureau of Statistics (NBS) showed the economy contracted by 1.40% in the 4 th quarter of However, after the agreement by OPEC to cut crude oil production, prices went as high as US$56.82/barrel on the 30 th of December, providing some respite to the economy. In spite of the economic downturn, Q4:2016 saw a marginal increase in leasing activity as corporate occupiers sought to take advantage of the falling rents and attractive incentives offered by landlords. In this quarter, around 6,300m² of space was leased of which 4,266m² were pre-let agreements. Most of these transactions involved relocations from B-grade buildings and serviced office spaces to A-grade buildings in core locations. Many corporates have continued to revise their space requirements downwards in view of the prevailing macroeconomic conditions. Supply of A-grade office space increased in Q4:2016 with the addition of two new developments, The Wings Office Complex and Lakepoint Towers located in Victoria Island and Ikoyi respectively. The addition of these buildings to the existing stock has further added downward pressure to rentals levels in Lagos as landlords strive to remain competitive in the market. Amidst the current harsh market realities and rapidly increasing supply, there has been an uptick in demand for smaller sized ( m²) fully furnished spaces from international corporates. Additionally, there has also been an increased number of enquiries to purchase office space within newly completed A-grade buildings.

3 Nodal Overview Existing Nodes Source: Broll, Esri Core Markets 27,000m² of A-grade space was added to the current office stock in Victoria Island through the completion of The Wings towers on Ozumba Mbadiwe. Before its delivery, The Wings was 50% pre-let with Oando as its anchor tenant. There were 3 new leases signed during the quarter, reflecting a take up of of 1,914m² in the region. Victoria Island extension (Oniru) also recorded some activity in the development pipeline as the Cornerstone Building, still in the construction phase, experienced notable progress. In Victoria Island as a whole, demand has not matched supply which has been reflected in the 10% decline in average asking rents to US$700/m²/annum between Q3 and Q Unlike Victoria Island, Ikoyi recorded a lower take up during the quarter as only 120m² of office space was leased in A-grade buildings with other transactions remaining in the negotiation phase. However, with a growing preference from multinationals, the Ikoyi sub-region is experiencing a increased interest as it establishes itself as the most prime location in the city for corporates. With the delivery of 2 new A-grade options on Alfred Rewane (the main commercial core in Ikoyi) during the course of the year, more enquiries are being made by international corporates whose preference for this region is emerging due to ease of access to the mainland, where a majority of the working population live, as well as the area s proximity to expatriate housing in Ikoyi for senior staff. Supply within this node is still on the rise. With the delivery of Lakepoint Towers in Banana Island, 13,400m² of space was added to the market. An additional 3 buildings, Alliance Place, Kingsway Towers (in advanced stages) and the new NDIC office building, are under construction. Akin to Victoria Island, average asking rents in Ikoyi fell by 6% to US$800/m²/annum in the fourth quarter of Asking Rental (Net/annum/m²) Region A-grade B-grade Ikoyi US$800 US$695 VI US$700 US$590 Lekki - 40,000 Ikeja - 35,000 Lagos Island - 28,000 Yaba - 15,000 Abuja 80,000 50,000

4 Secondary Markets Activity in the secondary markets such as Ikeja, Yaba and Lagos Island remained low. There were no new deliveries during the quarter, however construction commenced on an office building on Allen Avenue. The Ikeja office market continues to draw the attention of international corporates, specifically from the FMCG sector wanting office space close to their industrial factories. However, the lack of A-grade office space in this market has meant that most of the existing stock does not meet the requirements and specifications of many international corporates. Take up in this region is typically driven by local companies. In the Abuja market, activity remained slow with very little demand recorded. Some landlords have also stopped quoting rents and are willing to negotiate on a case by case basis with tenants when approached. This slowdown is expected to be exacerbated by the closure of the Nnamdi Azikiwe International Airport in March 2017 for reconstruction. Investment Market From a recent survey conducted by Broll, it was found that the office sector still ranks highly as a preferred choice for investment compared to other sub-sectors in the real estate market. However, investors are currently exercising caution before making any investment decisions given the prevailing market conditions in the economy. Although investors have indicated their sustained interest in investing in the country, Q4:2016 recorded little activity by way of new capital allocation towards the office market. The wait and see approach adopted by many investors has been hinged on the tight forex regulations and capital controls being implemented by the CBN. Most investors are concerned about the US Dollar scarcity which could affect the repatriation of their capital once they decide to exit the market. Outlook Over the course of 2017, 4 new A-grade buildings are expected to be delivered in Lagos adding over 30,000m² of lettable space to an already oversupplied market. Buildings set to be completed this year include Alliance Place (Q2:2017), Desiderata Tower (Q3:2017), Madina Tower (Q3:2017) and Kingsway Tower (Q4:2017). Over 34,000m² is expected in 2018 with the delivery of Cornerstone Tower (Q1:2018), currently in the advanced stages of construction. The trend of tenants relocating from B-grade buildings to better quality buildings is envisaged to continue as tenants take advantage of lower rents and favorable incentives. With various developments in the pipeline, rents are poised to fall further during the year as landlords seek to remain competitive.

5 NIGERIA OFFICE 6th Floor, ED Building, 47 Marina Lagos Island, Nigeria Telephone: Source: Broll Upcoming Development Alliance Place Alfred Rewane, Ikoyi 6,670m² 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, 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. RESEARCH Nnenna Alintah; Kola Oseni, Opuda Sekibo E: research@broll.com.ng COMMERCIAL BROKERAGE Babafenwa Omoniyi E: brokerage@broll.com.ng INVESTMENT BROKERAGE Bolaji Edu E: nigeria@broll.com.ng SUB SAHARAN AFRICA RESEARCH Elaine Wilson E: ewilson@broll.com