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Doing Business in Lagos
Is it time for a wake-up call for landlords?
Any entrepreneur should read this article before plunging into rental agreements in Lagos.
In talking to some local business owners in Lagos, we were shocked when we learnt what some of the landlords and rental agencies are charging for premises that could be used for shops, restaurants and other retail outlets in Lagos.
Rentals at the low end of the spectrum start at about €500 for an out-of-the-main-stream shop with less than 50 square metres and goes right up to more than €6 000 for ±150 square metre premises at the Marina de Lagos. Yes, we know that there are still some landlords only charging €35 for a shop to a tenant that they’ve had for more than 30 years. But that’s the exception rather than the rule.
It appears at face value, that many landlords see Lagos entrepreneurs as an ongoing cash cow, one that must be milked often and for the highest return possible. But the fact is, that the Lagos business environment survives only during the tourism high season that runs from middle June to middle September, and that businessmen struggle the rest of the year to make ends meet.
If one then takes into account that most businesses only operate at full capacity for only 3 months of the year, one can’t but ask: How do they manage to survive having to pay 12 months rentals under these conditions?
They have to sell a lot of goodies or services during these three months to just meet their rental commitments, never mind having to carry all other operational costs and still survive.
So it is not surprising when entrepreneurs tell us that the price of rentals are seriously affecting the general cost of doing business in Lagos. In addition high rentals in Lagos are preventing many would-be entrepreneurs from starting their own businesses.
If one analyses the rental environment in Lagos, one must be forgiven for assuming that landlords do not give a hoot about a sustainable business ecosystem in Lagos, given that so many new businesses close their doors after only one season.
Could it be because there’s the false perception in Lagos, that you can run almost any business in Lagos; and that such a business will produce enough money during the high season; and that this revenue will be sufficient to carry any entrepreneur for the rest of the year?
This perception still persists today and is based on the out-dated notion that “Lagos thrives on a huge tourism population”, with a lot of money to spend. But that is no longer the case and it has not been the case for over at least, the last five years!
The unfortunate implication of this mind-set is, that as long as one can come up with an idea and implement it through actions that translate into goods or services, there will be a ready and willing market. But the current reality is that visitors to Lagos have a lot less disposable income to spend, and as a result they are a lot more conservative in their spending habits. This impacts on the sustainability of local businesses.
At the same time, the perception that there will always be entrepreneurs looking and willing to rent some space, often lead real estate owners to want to leverage too much off the market sentiments, than what is sustainable, and they therefore continue to charge too high rental fees. After all, there is still a general belief in Lagos that there is money in whatever one chooses to do in Lagos.
Such a worldview pushed a young couple; lets call them the “Pereiras” into the world of entrepreneurship. Miguel, who owns a small retail outlet near one of the main trading streets in Lagos, deals in computers and allied accessories.
Today, despite the fact that his business remains a fledging one, he is already feeling the pinch and the biting side of landlords. According to him, the rent that he pays for his small space, which he describes as looking like a small cupboard, is too high for that size of space.
“When I was looking for a space to be used as a shop, I took into consideration where my business would be located as it would be very reliant on passing trade. So when I got this place, I was happy about location, but was deeply disappointed when the rental price was stated,” he notes.
Miguel adds, “Though business is good, the fact is that more than 50% of my turnover is applied into rental fees. This makes it very difficult for me to meet all my other commitments on an on-going basis. When I look at how much I pay for my rent, compared to what I make, it hurts.”
To compensate and to just make ends meet, it means that he has to increase his prices to his customers. So, he has a tricky situation on his hands: How to maintain reasonable prices and still survive.
With so many empty shops and offices in Lagos, in fact we counted over 200 vacant premises, one would expect landlords to drop their rentals, but that is not happening … leading us to question the status quo.
We approached a few landlords and put that question to them. We still wait for their answers.
The fact remains: The many empty shops and offices in Lagos are detrimental to Lagos as a destination of choice as it does not portray an image of a vibrant community and prosperity – an image, very critical for sustaining the Tourism Attraction and Tourism Destination of Choice indexes in today’s global competitive market.
So we leave here an appeal to landlords.
Re-look at your rental strategy and assist new entrepreneurs to get started. Assist current business people to stay open and in business by either charging more realistic rentals, or even partnering with them whereby your rental would equate a percentage of profits on a monthly basis.
We leave this appeal here, so that all together we can make Lagos the destination of choice that it deserves to be - with plenty on offer, at affordable prices and excellent quality of service.
Laurinda Seabra is a Business and Community Development Expert. She has mentored and coached hundreds of business owners and senior executives in a wide range of organisations. She is the co-founder of Empowerment Gateway, a hybrid fourth sector Social Enterprise that focus on empowering small business owners, supporting community and civic leadership development and the socio-economic upliftment of local communities.
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