Stakeholders in Africa’s exploding real estate market will gather this month in Johannesburg, South Africa, to discuss critical issues related to investing, view project and other industry exhibits, and network. Scheduled for Aug. 18-19 at Johannesburg’s Sandton Convention Center, the 2016 Africa Property Investment Summit will cover topics ranging from economic overviews, country analyses and global perceptions of African investment, to key property drivers, financing, legal and infrastructure issues, niche opportunities and future trends. More than 500 attendees from Africa and beyond are expected, including developers, investors, financiers, project and property managers, large commercial tenants, attorneys, entrepreneurs, industry professionals such as architects and construction firms.
Boasting prime office rents in Luanda, Angola, among the highest in the world at $150 per square meter per month, Africa is considered one of the “final frontiers” of commercial real estate, attracting both local and non-African investors, increasingly from South Africa, Asia and the Middle East. Lamudi.com, the German real estate portal, places 12 African countries among the top 20 emerging markets where luxury real estate is most affordable. Kfir Rusin, the summit’s general manager, says more than $1.2 billion has been raised and allocated to real estate investment in Africa over the past year.
“We see real estate and related industries as an important contributor to GDP in Africa and therefore we expect this trend to continue in future years,” he says/
Rusin notes that private equity company Actis L.L.P. (Britain), real estate investment management and development firm RMB Westport Group (Mauritius), commercial developers Novare Group (USA), private equity fund managers Phatisa (South Africa), and real estate investment holding company Growthpoint Properties Ltd. (South Africa), in the last year successfully raised capital from such global funds as GIC Singapore, GCM Grosvenor (USA), the International Finance Corp., and CDC Group (Britain) for real estate investments in Africa. The 2015 Knight Frank Africa Report on the continent’s diverse property markets, published by British property consultants Knight Frank L.L.P., identifies nine South African-based funds that have raised significant volumes of capital to invest in real estate projects across the sub-Saharan region.
“The underlying investment theme across sub-Saharan Africa over the next decade will undoubtedly be driven by substantial allocations of equity, into [joint ventures] with successful local partners. Both the West African retail sector as well as the southern and east Africa logistics sectors will be high on the hit list of international capital,” says Peter Welborn, who chairs Knight Franks’ Africa business.
International interest in Africa’s property markets continues to grow in spite of political, social, economic, legal and currency risks, and the well-documented everyday challenges of doing business in Africa, such as power outages and other infrastructure shortfalls. In 2014, for example, Actis announced plans to invest as much as $1.5 billion in African commercial property. The reasons for this bullish interest in African real estate are many:
Population growth. By 2100, an estimated 40 percent of the world’s population will live in Africa. Africa’s young population is driving demand for housing and other types of real estate. The continent’s median age was 19.7 years in 2012, and it is expected to increase to 25.4 years in 2050 from 19.7 years in 2012, making it the world’s youngest continent by population age.
Rapid urbanization. The urban population in Africa is projected to increase to 56 percent in 2050 from 40 percent as of 2014, making it the most rapidly urbanizing region in the world. The UN predicts that the urban population in Africa will surpass the rural population by 2037, creating demand for affordable residential, employee and student housing, and other types of real estate.
Fast-growing economies. Over the next five years, 13 of the 20 fastest-growing economies in the world are forecast to be in Africa. Nigeria, which in2014 replaced South Africa as the continent’s largest economy, will need almost 20 million new homes by 2025.
Expanding middle class. Africa’s share of the global workforce will increase from 13 percent in 2010 to 25 percent by 2050; between 2010 and 2020 the continent’s consumer spending is expected to double; the World Bank now classifies 27 of the 54 countries in Africa as either mid- or high-income countries, up from 15 in 2000. These trends translate to a rising urban middle class that already is encouraging modern retail development in major cities. South African retailer Shoprite, for example, planned to open 30 additional stores in Africa in the fiscal year ending June 2015, a 17.8 percent increase from the previous year.
Market transparency. According to the 2014 edition of Jones Lang LaSalle (JLL) Inc.’s and LaSalle Investment Management’s bi-annual Global Real Estate Transparency Index, sub-Saharan countries are in the very early stages of building and reforming their commercial real estate industry infrastructure. The Index shows Kenya, Ghana, Nigeria, Zambia and Mauritius claiming five of the global top 10 spots for greatest improvements in real estate market transparency between 2012 and 2014.
Financial sector reforms. Many countries are implementing reforms in pension fund, stock exchange and banking regimes that can play an important role in financing real estate investment. Governments’ increasing need for capital to finance urbanization will lead to more reforms and greater collaboration with private real estate capital.
Technology/Innovation. Innovative and low-cost building technologies will help to make housing affordable. PricewaterhouseCoopers predicts in its Real Estate 2020: Building The Future report that by 2020, technology will have altered the economics of entire subsectors of the real estate industry and changed the way that real estate developers and the investment community operate. “As successful cities attract more and more people, the cost of prime urban real estate per square meter will continue to rise. Affordability will fall, leading to greater urban density and smaller apartments. Developers will become more innovative about how they design and build commercial real estate, seeking to use space more efficiently. Construction techniques, such as prefabricated buildings and 3D printing, offer potential for fast, cheap and eco-friendly development,” the firm says.
Sustainability mandates. Developers in some countries already are using eco-friendly technologies to reduce their environmental impact, including solar building integration, climate responsive building strategies, renewable building materials, recycling and reuse, ecological building materials, integrated planning processes, low-cost design and the use of innovative design tools. Their use already can be seen in Ghana’s One Airport Square, and in Kenya’s Konza City, Nigeria’s Eko-Atlantic, South Africa’s Eco-City, and Zambia’s Roma Park. PwC predicts the use of eco-friendly technologies will be accelerated by new sustainability legislation in the most progressive African markets.
Return on investment. Investment returns from real estate in Africa’s rapidly expanding economies significantly exceed those achievable in almost all developed markets. According to PwC, forecasts of 20 percent net annual returns from investing in shopping malls, office blocks or industrial complexes in countries across Africa continue to draw in new investors. Some forecasters are more cautious, however, citing such issues as unreliable local developers and poor planning that can lead to lower returns.
High-growth opportunities. Office, industrial, retail and residential real estate will remain the dominant sectors, but affordable housing, agriculture, healthcare, retirement and mixed-use properties will become significant sub-sectors in their own right, PwC says. Travel to Africa for business and tourism will drive demand for hotels. New shopping malls have been developed in key cities such as Accra, Ghana; Lagos, Nigeria; and Nairobi, Kenya. Retail growth is supported by Africa’s buying strength, which is expected to jump to $1.4 trillion by 2020 from $860 million in 2008. Some warn, however, that demand for retail premises will decline in time as Africans shift to online purchasing.
The Africa Property Investment Summit in August comes on the heels of its sister East Africa Property Investment Summit in April in Nairobi, Kenya, and ahead of its sister West Africa Property Investment Summit slated for November 29-30, in Accra, Ghana. Not part of this family is the Sub-Saharan Africa Property Investment Summit, or SAPIS, a virtual expo organized by Ovid Capita, British- and Africa-based consultants in real estate project financing, investment appraisal and feasibility studies.
