Short-lets in Lagos: Property investment options
In their seminal report, The Real Estate Market Review H1 2023, Northcourt had short-let real estate market in Lagos. Below are excerpts of the Report which focuses on this highly lucrative segment…
Amenities in short-lets in Ikoyi, Lagos State
“The larger players in Nigeria’s hospitality industry are having to fend off incessant challenges from smaller short-stay enterprises. Not many operators anticipated the sub- market’s growth. Drivers for the expansion of short-stay flats include competitive pricing, the dread of hotel crowds, and the flexibility to choose the apartment of one’s taste. Short-let apartments are considered the preferred alternative for stays of one month. While hotels continue to dominate the Nigerian hospitality industry, short-let apartments are posing something of a threat. While some landlords earn directly from the short-let rental market, others profit through early rent payments from tenants who rent out spare rooms from their homes, à-la-Airbnb.
Living, work, and travel patterns have continued to alter across the globe, resulting in further modifications to real estate business models. Traditional landlord-tenant models have been replaced by investor-subscriber-based frameworks. The housing market in the Lagos Island area continues to have healthy demand because of relatively high-quality infrastructure, excellent security, new buildings, and competitive asset pricing. Property developers contribute to the development business on the strength of solid housing demand and stable pricing levels. Small- room residential units make up a growing component of the current inventory of new developments to meet the needs of young professionals and families with young children.
The average weekly occupancy rate for short- stay apartments in Ikoyi is four nights, with the busiest times being during the holiday season. Leisure activities, such as birthday parties, family reunions, and couple retreats, are key demand drivers. In addition, some operators claim that some subscribers choose Ikoyi to demonstrate their status and notoriety. 1- bedroom, 2-bedroom, and 3-bedroom apartments are in high demand among couples, individuals, and small families, whilst larger apartments are in high demand among large families and large groups of friends who reserve them for parties and gatherings. Location, quality of interior furnishings, and operating costs are important price factors. Ikoyi’s market is fragmented, as nightly rates differ between Banana Island, North, and South West Ikoyi. Most operators rely on internet listing sites to market their available short-term rental units, although they emphasise the need to utilise an agent network, with some even recruiting agents and entering into partnership agreements. Month-long reservations are common in the Ikoyi short-let market due to the residents’ status symbol.
Victoria Island has various four- and five-star hotels and short-term rental buildings and flats in residential developments. The Oniru area has a stable supply and pipeline as do the residential high-rise 1004 and Eko Pearl towers 1 and 2 have short let apartments. Leisure and entertainment apps fuel demand on Victoria Island. Many short-stay hotel subscribers are expatriate families and business visitors. Our poll found that studio apartments are more popular than multi-bedroom apartments, followed by one-bedroom flats. The average Victoria Island short-let apartment is filled five nights each week on average. Due to growing building activity, particularly in the office submarket, Victoria Island has performed well. Victoria Island has had many residential conversions and new constructions in the previous 5-10 years. High rental prices and other office submarket concerns have reduced demand for upscale office space on Victoria Island. The high vacancy rate and lack of tenants hurt asset performance and investor interest. Development activity provides little to office submarket supply, whereas existing properties contribute heavily.
Victoria Island has few purpose-built shortlet developments especially as its rising operational costs determine short let rental prices. Nightly rates for Victoria Island short-let rentals depend on the apartment’s furnishings and location. Operators and agents prefer short-let commercial leases because they reduce property damage. Users alone or in groups, want most short-let rentals. Due to lower entry barriers for landed assets and previously held properties, purpose-built shortlet developments are growing. Shortlet real estate investment efficiency is determined mostly by operational systems and employee quality. Short-let rental residences are increasingly using cameras and smart door locks to regulate visitor access and enhance security. Most service providers offer hotel-styled check-in and check-out times. Daytime guests typically cannot stay overnight, hence the number of renters scales linearly with rooms. The occupancy rate for 1- and 3- bedroom flats remains high.