Lagos commercial vs residential property: better returns?

Authored by the expert who managed and guided the team behind the Nigeria Property Pack

Yes, the analysis of Lagos' property market is included in our pack

Who is the author of this content?

THE AFRICANVESTOR

A team specialized in real estate investing in African countries

We are a team of financial experts, legal professionals, developers, and local real estate specialists dedicated to helping people like you avoid mistakes when investing in real estate in a foreign place, particularly in Lagos. If you'd like to learn more about us, you can check our presentation page.

How this content was created 🔎📝

At The AfricanVestor, we explore the Nigerian real estate market every day. Our team doesn't just analyze data from a distance—we're actively engaging with local realtors, investors, and property managers in cities like Lagos, Abuja, and Port Harcourt. This hands-on approach allows us to gain a deep understanding of the market from the inside out.

These observations are originally based on what we've learned through these conversations and our observations. But it was not enough. To back them up, we also needed to rely on trusted resources

We prioritize accuracy and authority. Trends lacking solid data or expert validation were excluded.

Trustworthiness is central to our work. Every source and citation is clearly listed, ensuring transparency. A writing AI-powered tool was used solely to refine readability and engagement.

To make the information accessible, our team designed custom infographics that clarify key points. We hope you will like them! All illustrations and media were created in-house and added manually.

What are the current average rental yields for residential versus commercial properties in Lagos?

Residential properties in Lagos generate average rental yields of 6-8% citywide, with significant variation based on location and property type.

Prime residential areas deliver lower yields due to higher purchase prices: Ikoyi properties yield 3.5-5%, Lekki Phase 1 offers 5-7%, and Victoria Island generates 4.5-6% annually. Mid-market residential areas like Yaba, Surulere, and Ikeja consistently produce 6-8% yields, making them attractive for yield-focused investors.

Commercial properties outperform residential yields with averages of 8-12%, though they carry higher market risk. Marina commercial properties yield 8-12%, Ikeja commercial spaces generate 7-10%, and Apapa industrial properties deliver 8-11% returns. Premium office spaces in these areas command rents of $55-60 per square meter monthly when fully occupied.

Short-let and Airbnb residential units in prime areas like Lekki and Victoria Island can achieve effective yields exceeding 9-12%, significantly higher than traditional residential rentals. However, these require active management and face higher vacancy risks during economic downturns.

As of September 2025, commercial properties consistently outperform residential properties in gross yield terms, but residential properties offer more predictable income streams with lower management complexity.

How much do prime areas like Ikoyi, Lekki, and Victoria Island earn landlords annually compared to commercial hubs like Marina, Ikeja, and Apapa?

Prime residential areas generate substantial annual rental income, with luxury 2-3 bedroom units in Ikoyi earning ₦30-35 million annually.

Lekki Phase 1 properties produce ₦10-20 million annually for mid-market 2-3 bedroom units, attracting young professionals and families seeking modern amenities. Victoria Island residential properties earn ₦15-25 million annually for city center apartments, benefiting from proximity to business districts and expatriate demand.

Commercial properties in prime business districts generate variable income based on space size and tenant quality. Marina office spaces, being in Lagos' core CBD, offer stable lease income with 8-12% yields on invested capital. Ikeja commercial properties earn approximately ₦190,000 per square meter annually for prime office space, benefiting from high occupancy rates in established malls and office complexes.

Apapa commercial properties focus on industrial and logistics operations, generating 8-11% yields annually due to demand from shipping companies and import/export businesses. These properties often require larger initial investments but provide stable long-term income from established businesses.

It's something we develop in our Nigeria property pack.

What are the current purchase prices per square meter for residential versus commercial properties in Lagos?

Prime residential properties in Ikoyi, Victoria Island, and Lekki command ₦800,000-₦1,200,000 per square meter as of September 2025.

Mid-market residential areas offer more affordable entry points at ₦400,000-₦800,000 per square meter, making them accessible to local investors and diaspora buyers seeking reasonable purchase prices. These areas include established neighborhoods like Yaba, Surulere, and parts of Ikeja with good infrastructure and transport links.

Commercial properties in prime business districts cost ₦750,000-₦1,500,000 per square meter in top locations like Marina, Victoria Island, and central Ikeja. These prices reflect premium positioning and established tenant demand from multinational corporations and growing Nigerian businesses.

Retail and office spaces command different rental rates, with some prime commercial spaces generating ₦27,000-₦190,000 per square meter annually in rent, depending on location and tenant profile. Industrial and warehouse spaces in Apapa typically cost less per square meter to purchase but require specialized knowledge of logistics and import/export businesses.

Commercial properties generally require larger initial capital outlays than residential properties, making them suitable for institutional investors and high-net-worth individuals rather than individual property investors.

How fast do residential properties appreciate compared to commercial real estate in Lagos?

Residential properties in Lagos appreciate at an average rate of 5-15% annually, with the fastest growth occurring in emerging corridors like Lekki and Ibeju-Lekki.

Luxury residential areas experience slower appreciation of 5-8% annually due to oversupply conditions in markets like Ikoyi and Victoria Island. Mid-market residential properties in growth areas consistently deliver 10-15% annual appreciation, driven by infrastructure development and increasing demand from Lagos' expanding middle class.

Commercial properties historically appreciate at moderate rates of 5-10% annually, but performance varies significantly by location and property type. Select commercial hubs like Ikeja and Apapa with ongoing infrastructure improvements outperform the average, while oversupplied office markets may lag behind residential appreciation rates.

Residential properties benefit from consistent demand driven by Lagos' population growth and urbanization trends. Commercial properties face more cyclical demand patterns linked to business expansion and economic conditions, making their appreciation less predictable than residential properties.

Infrastructure projects like the Lekki Deep Sea Port and ongoing road improvements continue to drive appreciation in both residential and commercial properties located in these development corridors, with residential properties typically showing faster initial appreciation followed by commercial development.

What are the occupancy rates for residential rentals versus commercial leases in Lagos?

Prime residential short-let and Airbnb properties maintain approximately 75% occupancy rates in peak areas like Lekki and Victoria Island.

General residential rental properties experience average vacancy rates of 11% citywide, with higher vacancy rates of 22-23% in luxury segments of Lekki and Victoria Island. Ikoyi luxury properties face even higher vacancy rates, reflecting longer marketing cycles and limited demand for premium-priced units.

Prime commercial Grade A office spaces achieve strong occupancy rates of 73-91% in established business districts like Marina, Victoria Island, and Ikeja. These high occupancy rates reflect stable demand from established businesses and multinational corporations seeking premium office locations.

Mid-market commercial offices maintain occupancy rates of 84-91% in Ikeja and 86% in Victoria Island, demonstrating consistent demand across different commercial property segments. These rates indicate healthy commercial property markets with balanced supply and demand conditions.

Residential properties face more frequent tenant turnover due to annual lease cycles, while commercial properties benefit from longer lease terms that provide more stable occupancy and predictable income streams for property owners.

How stable are commercial lease agreements compared to residential rental cycles in Lagos?

Commercial lease agreements in Lagos typically span 3-5 years or longer, providing significantly more stability than residential rentals.

Commercial tenants usually pay higher upfront costs and security deposits, reducing the likelihood of sudden departures and providing property owners with greater financial security. Anchor tenants in shopping centers and office complexes often sign even longer leases, creating stable income streams for commercial property investors.

Residential rental agreements typically last one year with annual renewal options, and some premium properties require two years upfront payment. This shorter cycle creates higher turnover rates and more frequent vacancy periods, particularly in the luxury residential segment.

Commercial properties face the risk of large tenant defaults that can significantly impact cash flow, while residential properties spread risk across multiple smaller tenants. However, well-established commercial tenants often provide more predictable income than individual residential tenants who may face personal financial difficulties.

Commercial lease negotiations often include rent escalation clauses and maintenance cost sharing, providing some protection against inflation and operating cost increases. Residential leases rarely include such protections, leaving landlords more exposed to rising costs during lease periods.

What are the major risks affecting residential versus commercial property returns in Lagos?

Residential property risks in Lagos include oversupply of luxury apartments, currency devaluation impacts, and rising utility costs that affect tenant retention.

The luxury residential segment faces particular challenges from oversupply conditions in areas like Ikoyi and Victoria Island, leading to increased vacancy rates and downward pressure on rental rates. Currency volatility affects expatriate demand and pricing for premium residential properties typically priced in US dollars.

Commercial property risks center on tenant concentration, where the default of one large tenant can severely impact cash flow and property valuation. Macroeconomic fluctuations affect business demand for office and retail space more dramatically than residential demand, creating cyclical performance patterns.

Both property types face regulatory risks from frequent government policy changes, including new taxes, planning regulations, and land use restrictions. Infrastructure challenges like power supply reliability and traffic congestion affect both residential and commercial property values, though commercial properties may be more sensitive to business environment changes.

Security concerns and social instability can rapidly impact property values across both segments, with commercial properties potentially facing additional risks from business disruption and reduced economic activity in affected areas.

What are the typical maintenance and operating costs for residential versus commercial properties in Lagos?

Cost Category	Residential Properties	Commercial Properties
Service Charges	₦1,000-₦5,000/sqm/year	₦2,000-₦5,000/sqm/year
Security Costs	Shared estate security	Dedicated building security
Power/Generator	Resident responsibility	Building management
Maintenance	Basic upkeep	Professional cleaning/compliance
Management	Lower complexity	Higher professional requirements
Total Annual Cost	3-5% of property value	5-8% of property value
Tenant Responsibilities	Utilities, minor repairs	Variable by lease terms

How do government policies and taxes impact residential versus commercial property owners in Lagos?

Government fees and taxes significantly impact both property types, with commercial properties facing higher overall tax burdens.

Stamp duty rates range from 0.75-1% for residential properties compared to up to 5% for commercial properties, creating higher transaction costs for commercial investors. Registration fees typically cost 3-5% of property value for both property types, while Governor's Consent fees range from 8-15% in Lagos regardless of property type.

Capital gains taxes apply at 10% for both residential and commercial properties, but commercial properties often face additional business taxes and licensing requirements. Commercial property owners must comply with more complex planning regulations, signage restrictions, and operational licensing requirements that residential property owners avoid.

Property tax assessments tend to be higher for commercial properties due to their income-generating nature and higher valuations. Commercial properties also face potential business registration fees, environmental compliance costs, and industry-specific regulations that residential properties do not encounter.

Frequent regulatory changes affect both property types, but commercial properties typically face more immediate impacts from new business regulations, zoning changes, and economic policy adjustments that can affect tenant demand and rental rates.

It's something we develop in our Nigeria property pack.

We did some research and made this infographic to help you quickly compare rental yields of the major cities in Nigeria versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you're planning to invest there.

What financing options are more favorable for residential buyers versus commercial investors in Lagos?

Residential mortgage financing in Lagos carries interest rates of 15-25% with high down payment requirements, typically 20-30% of property value.

Limited mortgage products exist for residential buyers, with long approval processes and strict income verification requirements. Some banks offer diaspora-specific mortgage programs with slightly better terms, but overall residential financing remains challenging and expensive for most buyers.

Commercial property loans are available for prime assets at interest rates of 18-22%, requiring extensive collateral and due diligence processes. Commercial lending typically demands larger down payments of 30-40% and focuses on cash flow projections and tenant quality rather than just borrower income.

Larger commercial assets can access direct investor funding and development finance, providing alternatives to traditional bank lending. Commercial borrowers with substantial asset portfolios often negotiate better terms through relationship banking and cross-collateralization arrangements.

Both financing options remain expensive compared to international standards, making cash purchases common among serious investors. Alternative financing through private lenders and investor partnerships has emerged for both residential and commercial properties, though at higher cost than traditional bank lending.

What are the expected net returns after taxes, maintenance, and vacancy losses for residential versus commercial investments?

Residential properties deliver net yields of 4-6% for mid-market properties after accounting for all expenses and vacancy losses.

Luxury residential properties in prime areas like Ikoyi and Victoria Island typically generate net yields of 2-4% after expenses, making them less attractive purely from a yield perspective. Mid-market residential properties consistently outperform luxury segments due to higher demand and lower vacancy rates.

Commercial properties in actively leased buildings generate net yields of 6-9% when fully occupied, outperforming residential properties in cash flow terms. However, commercial properties in oversupplied segments or with tenant concentration issues may deliver lower net returns due to vacancy periods and higher operating costs.

Maintenance costs typically consume 3-5% of residential property value annually, while commercial properties may require 5-8% of property value for proper maintenance and management. Vacancy losses affect both property types but tend to be more predictable for residential properties due to shorter lease cycles and broader tenant demand.

Tax implications, including property taxes and capital gains, reduce net returns for both property types, but commercial properties often face higher overall tax burdens that can significantly impact net returns compared to residential investments.

How liquid is the resale market for residential versus commercial properties in Lagos?

Mid-market residential properties in areas like Lekki, Yaba, and Ikeja sell fastest, often within weeks or months when priced appropriately.

Luxury residential properties in Ikoyi and Victoria Island face longer sale periods due to supply glut conditions and limited buyer pool for premium-priced properties. These properties may take several months to years to sell, particularly during economic downturns when discretionary luxury purchases decline.

Well-leased commercial properties in core business hubs resell quickly when priced fairly, as they attract both local and international investors seeking income-producing assets. Fully occupied office buildings and retail spaces with established tenants often sell faster than vacant commercial properties.

Specialized commercial properties or large commercial blocks may face slower sales due to limited buyer pool and higher capital requirements. However, commercial properties in redevelopment zones or with land banking potential often attract developer interest and may sell quickly despite current use limitations.

Market liquidity varies significantly with economic conditions, with residential properties generally maintaining better liquidity during economic uncertainty while commercial properties may face extended marketing periods when business confidence is low.

It's something we develop in our Nigeria property pack.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.

Sources

1. The AfricanVestor Lagos Property Analysis
2. LinkedIn Residential vs Commercial Real Estate Lagos
3. Lagos Nigeria Rental Yields Report
4. Troloppe Lagos City Report H1 2025
5. Punch Nigeria Grade A Offices Occupancy
6. Average Price per Square Meter Lagos
7. Nigeria Real Estate Blog Short-term Rentals
8. Naija Houses Residential Vacancy Rates