Report back from the 3rd edition of the JLL Masterclass series in collaboration with the Harvard Business School Nigeria Alumni Association Real Estate circle: Industry leaders from various sectors were invited to discuss the topic “Leveraging your Real Estate portfolio to achieve sustainable business growth”. Business longevity strategies were on the table as well as the role and evolution of commercial real estate.
Uzo Oshogwe, MD of Afriland Properties, shared his five-year business strategy and the need for flexibility in an environment of risky unknowns such as FX fluctuations and lengthy development cycles. Operating in the current recession, Afriland is not bullish on development due to selling and buying limitations. The company’s 2017/2018 perspective is to ‘float’ out the economic storm with strong cost controls and management practices, such as an in-house FM team. Afriland’s real estate holding is not voluminous which is why Oshogwe believes that an outsourced solution (generally viewed as more costly for small portfolios), is not required. It’s an approach that enables improved quality control too.
Following Oshogwe’s insight, the conversation moved into the financial services sector with a focus on two banks with different business sustainability strategies. Edward Ogunmekan, Head of Branch Network at Union Bank, gave an inside view of UBN’s ongoing transformation. “During the good times, the bank invested significantly in real estate. These assets became attractive to investors when CBN intervened in the banking sector.” A portfolio review indicated excess assets, inefficient governance practices (for instance, in certain locations bank brank managers were involved in buying properties), and poor facilities management. It was an intervention that prompted the move to becoming a simpler, smarter bank. As part of its transformation strategy, UBN brought in JLL as consultants to help optimise its existing portfolio – from freehold and leasehold disposals of non-core assets to portfolio analysis, to right sizing the portfolio, including database technology adoption for core assets. Ogunmekan explained how the assets the bank sold are now financing its transformation process. He echoed Oshogwe’s observation for a need for flexibility in existing strategies. “To lease or to buy, that is the question?” UBN’s directive for core assets was to move away from ownership to leasing. Exceptions had to be made in certain parts of Nigeria where property stock that met the bank’s real estate criteria was not available. Freehold acquisition was the only option in these cases.
Diamond Bank, on the other hand, has a completely different strategy with a strong focus on digitalisation. As a much younger bank than UBN, it did not have the same legacy portfolio challenges. Rob Giles, Head of Retail Banking at Diamond Bank, said the bank’s growth has had everything to do with its adaptation of digitalisation. Giles’ analysis paints a clear picture: “We are 25 years old. In our first 23 years of business, we built 300 branches and gained 5 million customers. Over the past two years, we extended out customer base by 7 million and added zero new branches.” He says the bank has observed a shift in the industry, moving away from processing cash (which requires strong rooms and ‘unfriendly’ banking halls), to a focus on the customer. Giles says the 7 million new customers didn’t have to visit the banking hall at all! Given the high cost of cash processing, Diamond is focusing on innovation solutions to win the e-race through increased efficiencies. With 85% of its transactions now digital, one of the strategies is a change in the role of traditional branches. Instead of banking halls, Diamond is creating lounges for affluent clients or training centres for SME clients.
Giving an academic perspective to the conversation was Ijeoma Nwagu of the Lagos Business School’s Sustainability Centre. Nwagu focused on the need for continuous collaboration between commerce and government to attain business sustainability. Equally important is the need to document and share best practices amongst industry practitioners. Things like idea generation amongst employees must be encouraged in a move to improve engagement levels, which are sitting at a low 12%. Lagos Business School is creating a neutral platform to inspire these exchanges in a bid to motivate a move away from the silos that Nigerian businesses like to operate in. The human side of transformation was also addressed as critical to attract and retain talent, particularly in the younger generation.
The people side of business is proving significant for leading Nigerian online travel booking company, Wakanow. CEO Obinna Ekezie says that in theory, online travel should be able to operate in a totally digital world. In practice, however, Wakanow has had to invest in real estate locations due to existing cultural biases. According to Ekezie , “people want to touch people”. In Nigeria, a physical space gives credibility to the business and to transactions. Wakanow has experienced an increase in online traffic each time a new location has been opened. It is Ekezie’s ambitious objective to grow the business from 36 branches to 120 branches in three years with expansion to 20 African countries. Wakanow sees a gap in travel tourism, particularly in Nigeria. With a population of 150 million people, just less than 10% actually travel (3 million international and 9 million domestic). This is due to the poor purchasing power of typical Nigerian citizens. Wakanow’s ‘pay small – small’ solution allows customers to book their flights early and pay over time, before their trip – effectively increasing the purchasing power of the people. Ekezie says the vision is to be a travel finance company in the next 3-5 years.
The topic of sustainable business will always be an evolving conversation, but what is clear is that real estate has an important role to play in influencing and driving business strategy.