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Real Estate Operators Struggle with Soaring Electricity Costs

The commercial real estate market is currently grappling with several major challenges, including high interest rates, an economic slowdown, and the lingering effects of the COVID-19 pandemic, all of which have created a precarious environment. However, these difficulties are being further compounded by a surge in electricity bills, rising costs of power facilities, increasing vacancies, and declining property values, particularly in secondary office markets.
 
Industry operators are expressing concerns over the categorization of energy consumption into feeder Bands A, B, C, and others, which has caused commercial utility bills to triple, significantly impacting overall operational costs. The Nigerian Electricity Regulatory Commission (NERC) recently approved the classification of electricity consumers into these feeder bands. As a result, customers in Band A saw a sharp increase in electricity tariffs from N68/kWh to N225/kWh, a 240% rise, which has been described as unaffordable, especially for businesses. Although it was later reviewed to N209.50/kWh, the impact remains severe.
 
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Band A customers are supposed to receive 20-24 hours of electricity daily, Band B receives 16-20 hours, Band C 12-16 hours, Band D 8-12 hours, and Band E only 4-8 hours. Despite the latest tariff increase not affecting Bands B, C, D, and E, the cost of electricity for Band A consumers has soared, leading to significant operational challenges for businesses. For example, under the new Band A classification, N50,000 now buys only about 225 units of electricity, compared to 755 units previously.
 
The ongoing power challenges have also driven up the cost of using generators, with diesel prices skyrocketing to over N1,100 per litre. Many operators report that this situation is unsustainable, with some commercial facilities spending an average of N2.5 million monthly on diesel to supplement grid power. Tenants in commercial outlets are increasingly accepting the reality of unreliable daily power supplies, while also facing rising service charges, including security, cleaning, repairs, and lawn maintenance, which have increased by over 60%.
 
The commercial real estate sector, including shopping malls, office spaces, industrial facilities, and hotels, is struggling under the weight of high operational costs due to the power crisis. This is dampening demand for commercial properties, stalling rental growth, and eroding profitability.
Facility managers like Mr. Alfred Osagie highlight that customers are now paying exorbitant rates for unreliable power. He notes that if Band A customers received the promised 24-hour electricity supply, it would be cheaper to run commercial facilities on electricity than on diesel. However, due to the current situation, many businesses are cutting back on generator and air conditioning usage, adjusting operating hours, and implementing prepaid metering systems to manage power consumption more effectively.
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The rising costs and challenges have also led to changes in how new developments are approached. Developers are now more hesitant to centralize power supply in new projects, with tenants increasingly bringing their air conditioners and opting for smaller, more energy-efficient spaces.
 
Former Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) Lagos branch, Mr. Rogba Orimalade, revealed that electricity bills in malls managed by his firm have become grossly unaffordable for tenants, leading to disputes between facility managers and tenants over the high costs.
The burden of increased electricity bills has forced many malls to raise their rates by over 300%, with those previously spending N1.5 million now spending around N4 million monthly. President of the Association of Town Planning Consultants of Nigeria (ATOPCON), Mr. Adebisi Adedire, shared similar frustrations, detailing the significant investments made in power infrastructure for one of his facilities, only to be met with unaffordable bills and unreliable power supply.
 
In response to these challenges, some businesses, like Afriland Properties Plc, are exploring alternative solutions such as solar power and inverters to reduce the burden on tenants and manage operational costs more effectively. However, the situation remains a significant obstacle for the commercial real estate market in Nigeria.

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