A patchwork continent of 54 countries all at different stages of development makes for a tough analysis. Emily wright reports
The exact moment an emerging market becomes an attractive investment opportunity is a tough one to call. Is it when people start to feel safe enough to drive around the major cities? Is it when they feel safe enough to drive around the major cities without an armed guard? Is it when Google swoops in from nowhere and snaps up 1m sq ft?
In reality, the moment comes when the reward is seen to have edged out the risk – a highly subjective analysis in its own right. So when the emerging market you are looking at is the world’s second-largest land mass – a continent made up of 54 nations all at varying stages of development – it is even more difficult to know when the time is ripe.
It does seem, though, that despite such in-built hurdles, now is Africa’s moment. And in the real estate sector clear pockets of activity have emerged off the back of the continent’s growth increase from less than 3% year-on-year throughout the 1980s and 1990s to more than 5% every year since 2000.
Rising commodity prices, reduced trade barriers and improved governance have opened up exciting new African markets for overseas real estate.
Commercial hot spots
Much like the advanced coastal markets of North America, Africa’s most popular commercial real estate activity zones have emerged on the far east and west coasts of the continent. Nigeria and Ghana in the west and Kenya and Tanzania in the east are attracting attention. Kenya’s expected GDP growth is 8.2% and the country offers a myriad commercial opportunities.
“HQ space in Nairobi has really taken off,” says Ben Woodhams, managing director of Knight Frank Kenya. “But across all the popular investment markets it comes down to sheer demand. In Nigeria’s main commercial city, Lagos, there is only one shopping centre. That’s for a population of 11m people.”
Nigeria is probably the African market that has attracted the most foreign attention up until now thanks to its inclusion in the MINT groupings and the fact that headline office rents in Lagos are among the highest in the world at £55 per sq ft.
And over the past two years Ghana’s political stability and 8.2% growth has caught the eye of a number of investors, including British private equity fund Actis (see interview overleaf).
While commercial opportunities in South Africa are more limited – its GDP has slowed to just 2.6% – the big openings lie in industrial property and big regional shopping malls. In Johannesburg and Cape Town, industrial is the strongest performing sector with yields of 10% and 9.5% respectively.
Residential hot spots
Residential growth rates have moved into double figures across sub-Saharan Africa’s coastal countries including Kenya, Ghana and Nigeria. In Kenya the residential market is shifting fast from individual houses dotted across rural areas to city-centre high-rise flats. Rents are now reaching $4,400 (£2,852) a month in some prime areas as buying is nigh-on impossible. While an average lower middle-class home can cost from around $50,000, there are just 20,000 mortgages in the whole of Kenya – a country of 45m people – because the average mortgage interest rate is 15%.
In South Africa, most new residential property is being developed as part of mammoth, out-of-town satellite cities, as people move away from CBDs (see City Guide, below, for more).
Growth areas
In sub-Saharan Africa farmland has risen in value significantly over the past decade and Nigeria is one to watch for Africa’s first serviced apartments. Lagos-based serviced apartment chain Amara Suites is one of the only firms of its kind in the continent.
Risks and challenges
The Ebola crisis has had an impact on the African market – particularly on the west coast – though confidence is slowly returning. Then there are the inevitable risks of operating in unfamiliar markets and, in the case of sub-Saharan Africa in particular, there are fears over possible terrorist attacks. This became particularly acute after the Westgate shopping centre attack in September 2013. Opinion on the ground is that these incidences should not be taken as the norm.
“I do understand how the nervousness is justified,” says Woodhams. “But these occurrences are actually very rare.”
Must-have contacts
Rohan Patel, director of corporate development at Grenadier, one of the biggest developers in Kenya with a £60m pipeline (see interview, overleaf)
Koome Gikunda, investment principal at Actis, a British emerging markets private equity fund managing roughly $6bn of assets (see interview, overleaf)
Guy Gordon, project manager at Amdec Group, the developer overseeing the delivery of the 5.5m sq ft Melrose Arch mixed-use scheme in Johannesburg
Will Tindall, co-founder and director at Emerging Crowd, a crowdfunding and investment platform that supports start-ups and early-stage companies including Africa-based entities
City guide: Johannesburg
With a population of 4.3m, South Africa’s biggest city has, like the rest of the country, had a challenging year thanks to a slowing economy and a country-wide shortage of prime stock. But the capital of the Gauteng region – the name given to the wider district derived from the Afrikaans for gold – still offers up some decent opportunities.
Why invest?
Johannesburg remains an attractive investment option thanks to the emergence of mega developments away from the CBD – now considered a dangerous no-go area by most – to the north of the city. These include the $4.5bn (£2.9bn) Waterfall City in Pretoria and the $1.6bn Melrose Arch project, where rents have hit the highest in the entire Gauteng region at more than ZAR200 (£11) per sq m. Plus the city’s creaking infrastructure is being eased thanks to a 20-year government plan that will plough $47bn into the upgrade of the high-speed Gautrain service.
The opportunities
Apart from the emergence of large-scale satellite city redevelopments, Johannesburg’s industrial sector is worth looking into with yields of 9.5% – higher than any other sector. There is a big focus on warehouse development and logistics as swathes of the population move further away from the city’s central hub. And Gauteng is still the best place in South Africa to get in on the industrial sector growth as “20 industrial deals are done for every one in Cape Town or Durban”, according to Englebert Binedell, head of industrial at South Africa’s biggest developer.
Stand-out scheme
The $1.6bn, Amdec-developed Melrose Arch project currently stands at 2m sq ft with a further 3m-5m sq ft in the pipeline. It is one of several sprawling mixed-use schemes being developed to address region-wide issues with congestion and security. It will include a shuttle service to the nearest Gautrain station, a 5,700-capacity mirrored and guarded car park and 100 security guards patrolling the site.
