The economies of sub-Saharan Africa are set to grow by an average of 5.4% in 2014, with some countries expecting leaps of more than 10%. As a result, real estate activity across the continent, especially on the east and west coasts, is at an all-time high. But are the mind-boggling opportunities worth the well documented risks? And is there still time for UK firms to get in on the action in the wake of an aggressive Chinese invasion? Emily Wright travelled to east Africa to find out.
The exact moment at which 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 start to feel safe enough to drive around the major cities without an armed guard? Is it when Google swoops in from nowhere and snaps up 100,000 sq ft?
Whatever the catalyst, it all comes down to the same thing: that 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, in fact, one of the world’s largest land masses – a continent made up of 55 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 at least 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, improved governance and increased investment have opened up exciting new African markets for overseas real estate companies and investors to jump in to. But are they making the most of them? And when they do decide to make a play, are they picking the right ones?
The hotspots
Much like the advanced coastal markets of North America, Africa’s most popular 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 proving especially attractive thanks to anticipated growth levels of up to 8.2% and, in the case of east Africa, a more recent discovery of oil in northern Kenya at the end of last year.
“Tullow Oil’s discovery of what it believes to be vast reserves of oil in Kenya will see HQ space in Nairobi really take off as the big oil companies roll in,” says Ben Woodhams, managing director of Knight Frank Kenya. “But across all the popular investment markets it comes down to sheer demand. In the Nigerian capital of 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 commercial rents in Lagos are among the highest in the world at approximately £55 per sq ft. And earlier this month the government nearly doubled the estimate of the country’s gross domestic product to $509bn (£303bn). But in the past year it has been Ghana’s political stability and 8.2% growth that has caught the eye of a number of investors, including British private equity fund Actis.
“Accra has been flavour of the month in terms of real estate lately,” says the fund’s investment principal Komme Gikunda. “There has been a lot of investment in retail and mixed use. We are one of the players in that market and it is looking very encouraging.”
Chasing the Chinese
The IMF predicts continued average growth rates of 5-6% across Africa in the next five years. Up to almost 12% in some cases. Rapid urbanisation – particularly in the aforementioned hotspots – and the emergence of Africa’s middle class and growing consumerism are likely to continue to attract overseas investor interest, with activity in real estate spanning most sectors. And the rise of cellular phone connections across Africa from 17m in 2000 to more than 700m in 2012 has seen the continent become the fastest growing mobile market in the world, further fuelling economic growth, according to Knight Frank’s Africa Report.
But there remains a major image problem, especially regarding interest from the West. In the past decade China has become Africa’s biggest investment partner, with predictions that Chinese investment alone could reach $50bn by next year. Now there are a number of Chinese construction firms involved in building landmark African projects, including major infrastructure schemes, and the advice from those on the ground is that UK firms should look to enter the market before it is too late.
“There is still time, but UK firms and funds are already behind in the race,” says Knight Frank’s Woodhams.
“South African firms are already here in a massive way talking about multimillion-dollar funds coming in to build and to buy. And the other money tends to be Chinese. Or Indian, Russian and Middle Eastern.
“Many people don’t realise how developed many parts of Africa are, and how advanced security is. Focusing on Kenya, given what happened here last year with the Westgate shopping mall attack, I do understand nervousness is justified. But these occurrences are very rare. It is just that when something goes wrong here it tends to go very wrong and hits the headlines. But we all have our families here without a second thought and have done for years. The opportunities here are huge. Western investors should be grabbing them while they can.”
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