Analysing the Obsolescence Risks of Older Office Buildings in Nigeria as we move towards Net Zero Target: The Western House, Lagos Considerations
As the global push for carbon neutrality by 2050 is creating a wave of change for the commercial real estate sector, energy-efficient buildings with a lower carbon footprint are more attractive to tenants and command higher rents. This is not so for the older commercial office buildings as they face a significant risk of obsolescence if they don't adapt. While modern green buildings are leading the charge, retrofitting older office buildings to meet sustainability standards, attract tenants, and command reasonable rental income in Nigeria's evolving commercial real estate market becomes necessary.
Given the old Western Regional Government's massive investments in property development and acquisition in Lagos and throughout the Southwestern Region via the National Investment and Property Company (NIPC), it is critical to adopt and adapt sustainable measures for the preservation of these investment assets in order to help it achieve the goals and objectives envisioned by the founding fathers.
In akinABRAHAM & ASSOCIATES LTD's most recent Commercial Property Market Tracker: #HeritageBuildingSeries, we looked at the effects of obsolescence risks on the Western House, a 20-story office building in the heart of Lagos Island's Central Business District of Broad Street, to assess its relevance in today's ever-changing Lagos Office Market, as well as its overall financial performance about the goals and objectives of Odua Investment Company Limited (OICL).
Our findings show:
📊 The Western House's development cost of N63.300 billion in today's market price has lost almost 59.37% of its value to obsolescence risks. This is further compounded by the actions of the older office buildings within the Lagos Island sub-property market that keep improving their modern use preference and design functions through retrofitting to meet tenants' demand and thinking ahead of regulatory risks.
2. 💡💰The value loss due to obsolescence risks continues to increase the rental loss, vacancy rate, and credit loss, while also reducing net operating income (NOI) and market value of the extension. To avoid additional regulatory and obsolescence issues, the building requires a significant amount of modification to meet the target efficiency level. The cost of retrofits can range from N80,000 to N300,000 per square meter of gross lettable area (GLA) depending on the options chosen. The options may include a light retrofit (lighting upgrades, basic insulation improvements, and potential low-cost HVAC optimizations), a moderate retrofit (involving a more comprehensive HVAC upgrade, improved building envelope, and possibly some smart technology integration), or an extensive retrofit (aiming for the highest efficiency standards with significant upgrades or replacements in all areas).
3. 📈💰According to our analysis, the office building in its existing state and conditions is losing up to 140% of its rental income due to the Loss-to-Lease factor, as the Lagos Island office market continues to improve in terms of rent passing and occupancy.
To justify the founding fathers' initial capital investment and position the Property to be relevant as the real estate sector commits to carbon neutrality, the Western House administrators and managers must implement well-executed retrofitting plans that can significantly increase the value of the property in the long run, since energy-efficient buildings with a lower carbon footprint are more attractive to tenants and command higher rents as the world commits to the carbon neutrality of real estate by 2050.
For more information, please call +234-806-877-4629, email at info@akaa-ng.com or visit our website at www.akaa-ng.com
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