From Flats to Shops: Why More Nigerian Investors Are Abandoning Residential Properties for Commercial Gold

 

Residential Rentals Are Losing Appeal as Nigeria's Landlords Pivot to Commercial Property

Across Nigeria’s major cities, a quiet but decisive shift is happening in the real estate sector. More property investors are turning their backs on traditional residential rental buildings and embracing the relative stability of commercial property. What was once considered a dependable source of passive income has morphed into a nerve-racking and costly venture for landlords.

A growing number of landlords now see residential rentals as a liability rather than an asset. Many who once believed in building multi-flat apartment complexes are selling off or repurposing those structures into shops, office spaces, and service hubs. The reasons are rooted in economic realities and evolving legal frameworks that increasingly favor tenants.

Landlords frequently share stories of tenants who default on rent for months, then resist eviction efforts using legal loopholes. Current tenancy laws in states like Lagos and Abuja can require between six and eighteen months to process a lawful eviction, even when a tenant has not paid rent for over a year. During this period, property owners remain burdened with bills, maintenance, and legal fees while their defaulters remain comfortably housed.

Worse still, many of these tenants understand the system and deliberately take advantage of it. They delay court proceedings, find legal representation to stall evictions, and in some cases, counter-sue landlords for “emotional stress” or “unsafe conditions” in the property they have refused to maintain or pay for.

Alongside legal frustrations, economic hardship is pushing more tenants into chronic default. With over 63 percent of the working-age population unemployed or underemployed, late rent payments are no longer occasional. They are now standard practice. Some tenants go as far as requesting landlords make property upgrades while sitting on a backlog of unpaid rent. Complaints range from damaged boreholes to repainting requests and faulty wiring, all while no payment has been made for months.

Property damage is another rising concern. Cracked tiles, broken doors, blocked drainage systems, and filthy septic tanks are becoming common sights for landlords conducting routine inspections. For those managing multiple flats, the cost of maintaining these buildings is rapidly eroding any potential profit from rent.

Many landlords who once prided themselves on having rows of residential flats are now rethinking their strategy. Commercial property, long considered riskier by some, is now the quiet winner. Retail shops, mini-plazas, pharmacies, lounges, and short-let apartments are proving to be not just more lucrative, but significantly easier to manage.

A ₦25 million investment in a residential building often brings in only about ₦700,000 per year in rent. This translates to a return on investment that may take up to 35 years to materialize. The same amount spent on constructing five retail shops could yield between ₦2.5 million and ₦3 million annually, cutting the ROI period to just 8 to 10 years. The numbers are compelling.

Unlike residential tenants, commercial clients tend to sign longer leases, usually spanning three to five years. They are more inclined to fix their own facilities, are legally and financially committed to preserving their business environment, and typically do not make demands unrelated to their lease agreements.

New age landlords are adjusting fast. Instead of flats, they are constructing shop plazas and mixed-use buildings that can host tech hubs, cafes, mini-clinics, or even co-working spaces. Short-let apartments also offer flexibility and higher turnover rates, especially in urban and semi-urban zones with regular inflow of business travelers and tourists.

Experts in the Nigerian property market now advise new investors to re-evaluate their options. Real estate remains a valuable asset class, but the mode of investment must evolve with the times. With inflation high, joblessness widespread, and legal protections favoring tenants over landlords, the age of stress-free residential rent collection appears to be fading fast.

The new reality is clear. Investors looking to protect their capital while enjoying steady returns are finding more peace, profit, and predictability in commercial real estate. Those who remain stuck in outdated models may soon find themselves grappling with the harsh consequences of an unforgiving housing economy.

For aspiring and seasoned landlords alike, the message is simple: if you're still building blocks of flats in 2024, you may be playing a game that no longer offers the rewards it once promised. The smart money, and the smart mindset, is moving elsewhere.