Research: Why Office space in Lagos costs more than New York

When you think about the most expensive offices space in the world, cities like New York and London,with their reputations as global financial centers, spring to mind. However, when it comes to pricing, Lagos, the commercial capital of Africa’s largest economy has managed to find a comfortable spot among them.

Dolapo Omidire of Quartz.com examines how Lagos has arrived at this spot. 

Rentals for prime office space in Lagos (Ikoyi) is up to $90 per sq. ft per annum this year, above those seen in Midtown Manhattan in New York where rents are closer to $76 per sq. ft per annum, according to new data by CBRE, Broll and JLL, real estate firms. They are also trailing the $96 per sq. ft rents seen in the City of London and more than four times higher than prime office rents in Illovo, Johannesburg.

For yield-seeking real estate investors, the Lagos opportunity might appear attractive at first glance. But the factors behind the numbers are worth digging into.

Low supply

Gross inadequacy of real estate supply has acted as a major driver to high rents in the past decade. Less than 650,000 sq. ft. (60,000 sq. meters) of prime office space in fewer than 10 high-rise office buildings in Victoria Island and Ikoyi existed in Lagos prior to 2010. Other office towers did exist in the old Central Business District, but their glory days laid in the late ‘80s and ‘90s.

As age and congestion began to set in and landlords refused to refurbish, corporates relocated to residential office conversions in Victoria Island. Consequently, demand began to outstrip supply, allowing the few owners of prime office space get away with seemingly ridiculous rentals.