Nigeria’s Real Estate Market Faces a New Reality as Inflation Falls and Rates Stay High

Nigeria’s real estate market is entering a new equilibrium. Inflation, which reached multi-decade highs from 2023 to 2024, is beginning to ease. Yet, benchmark interest rates remain elevated as the Central Bank of Nigeria (CBN) maintains a tight monetary stance to stabilise the naira and anchor expectations. This dual dynamic reshapes the economics of property investment, financing, and development.

Our analysis suggests three key implications:

1. Residential demand remains resilient in middle-income and affordable segments, but financing barriers hinder growth in mortgage and developer pipelines.

2. Commercial real estate faces pressure as corporates delay expansion and prioritise capital efficiency in a high-rate environment.

3. Institutional investors recalibrate strategies, favouring yield-protective structures, joint ventures, and alternative financing as traditional debt becomes more expensive.

Macro-Economic Backdrop

1. Inflation cooling

2. Rates remain high

3. Currency stabilisation

Implication for real estate: Lower inflation improves affordability in nominal terms, but persistently high interest rates continue to suppress credit penetration in the housing market and elevate the weighted average cost of capital (WACC) for developers.

Residential Market: Resilient Demand, Constrained Supply

Demand driver:

• Urbanisation and demographics: Nigeria’s urban population is growing at 4% annually, creating demand for an estimated 700,000 new housing units per year.

Supply and financing constraints:

• Mortgage penetration remains at 5%, compared to 30–40% in South Africa and advanced markets.
  

• Banks’ mortgage rates remain in the 15-25% range, making financing inaccessible to most households.
  

• Developers rely heavily on equity, presales, and alternative financing channels, which limit their scale and delivery speed.
  
  Outlook: Demand for affordable and middle-income housing remains strong; however, supply elasticity is limited by financing costs. We expect greater activity from cooperatives, off-plan schemes, and employer-backed housing programs.

Commercial Real Estate: A focus on Capital Efficiency

Office:

• Corporates in Lagos and Abuja are delaying large-scale leasing commitments. Grade-A vacancy rates have stabilised around 14-16% in Ikoyi and Victoria Island, while rents denominated in naira are showing a slight recovery as inflation cools and the naira remains stable.
  

  Retail:

• Footfall in malls has recovered slightly with easing inflation, but high interest rates suppress retailer expansion plans.

• Large developments are on hold, with developers renegotiating financing terms and focusing on refurbishment rather than greenfield expansion. Investors are increasingly evaluating the neighborhood mall concept depending on regional dynamics. These mid-scale centers present a more capital-efficient rollout model while adequately meeting the everyday needs of the Nigerian consumer, spanning groceries, pharmaceuticals, household services, food, and essential apparel. By offering convenience and accessibility, this format is strategically positioned to compete more effectively with the traditional informal markets, where a significant share of consumer spending continues to reside.

Adapting to the New Reality

In this high-rate, low-inflation environment, we observe four emerging strategies:

1. Joint ventures and partnerships: Developers increasingly collaborate with pension funds, private equity, and DFIs to access long-term, lower-cost capital.

2. Shift to alternative financing: Growing use of real estate investment trusts (REITs), sukuk, and cooperative financing structures to circumvent traditional bank lending.

3. Operational efficiency: Focus on asset management, rent collection, and energy cost optimisation to protect yields.

4. Localised currency hedging: Structuring contracts to account for FX movements and naira volatility, despite lower inflation.
   

Implication for Stakeholders

• Developers must innovate financing models, prioritise affordability, and de-risk projects through phased delivery.

• Investors should tilt portfolios toward resilient segments while hedging exposure to FX and rates.

• Policymakers need to address structural financing barriers by expanding mortgage access and deepening capital markets for housing finance. The rollout and execution of MREIF can be a game-changer.

Conclusion

Falling inflation offers relief, but high interest rates set a new baseline for financing and capital allocation. A combination of innovative financing, efficiency, and a focus on resilient asset classes will help players capture long-term growth in Africa’s largest urbanising economy.