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Short let: The fastest growing division of real estate in Lagos

Posted by Danbel Properties on August 31, 2022
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Over the last three years, the short-let market in Lagos has increased by 263%. According to experts, the Lagos Short let Report shows that this development was primarily driven by an increase in demand for both long-stay and short-stay flats in the wake of the pandemic.

The major short-let hotspots in Lagos have come to be identified as Ikoyi, Victoria Island, Lekki Phase 1, and Ikeja. But Lekki Phase 1 stood out as a top performer, keeping occupancy levels at 80%, which is significantly better than the levels observed in Ikoyi and Victoria Island, respectively, which were 60% and 70%.

While the pandemic accelerated the growth of the short let market, experts note that as a niche sector, the short let market has been alluring to both operators and tenants for a number of reasons including the strong income profile it presents to investors and the ease of access to tenants.

This market niche’s creation is a persistent trend in the residential market in Lagos. In essence, the market is being corrected backward since it is not used to monthly rents. As a result, the industry has taken advantage of the unmet demand that resulted from a market with strict annual rental payment requirements. Simply said, there has never been a choice with this much freedom before.

In terms of returns, short let operators have continued to enjoy return premiums of up to 200% due to the high daily rates compared to the annual rents in the mainstream residential sector ultimately leading to an influx in short let operators in the market.

However, while the market has seen unprecedented growth due to the pandemic, the return to normalcy has seen 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 let market impacting on overall returns for investors and affordability for tenants. 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.

Additionally, a looming market oversupply is forcing market operators to rethink their service offerings. With approximately 1,975 units of ‘short let’ type build expected to come on to the market, this is likely to exert pressure on existing rentals especially the converted residential stock resulting in their low occupancy levels.

While these factors are pointing to a possible bust in the market, real estate experts expect the market to constantly grow and bring in massive interests to its investors.

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