• Setting up shop

    Demand for quality office space, retail developments and hotels is attracting property developers across the continent.

    Setting up shop

    Sub-Saharan Africa, excluding South Africa, has less than 3 million m² of Grade A commercial space – both office and retail. This is according to global real-estate company Jones Lang LaSalle’s 2013 report, The African Century: Twelve Pillars of Africa’s Future Success.

    ‘Sub-Saharan Africa’s commercial real-estate sector has many of the ingredients for “lift-off” as the industry responds to the strong demand for high-quality property,’ it states.

    In the past decade, African economies have grown by at least 5% a year, driven by a commodities boom. This has seen an increase in manufacturing, telecoms and financial services, as well as a rise in consumerism as the middle class expands. At the same time, the African population is growing fast, getting younger and rapidly moving from rural to urban areas.

    The continent is also attracting a higher share of foreign direct investments, and in 2013 it achieved the highest share of global investment in a decade, according to the 2014 EY survey, Executing Growth.

    Increased investment has led to added development, including considerable financing of much-needed infrastructure projects, while improved political stability makes parts of the continent more enticing.

    These trends are ‘generating an urgent requirement for a modern commercial real-estate infrastructure’, according to Jones Lang LaSalle.

    South African companies facing sluggish domestic economic growth are looking to the rest of Africa for opportunities. The IMF cut the country’s GDP forecast to 1.4% for 2014 and is predicting fairly sluggish growth of 2.3% for 2015. By comparison, it foretells that sub-Saharan African growth will reach a far more robust 5% in 2014 and 5.8% in 2015.

    Economic growth and property development tend to go hand in hand.

    Amelia Beattie, chief investment officer at Stanlib, says: ‘Property is both an enabler and beneficiary of economic development. Wherever there is growth, investments in property tend to thrive.’

    Asset management firm Stanlib has launched a fund to take advantage of this property boom, which is expected across the continent. Its Africa Direct Property Development Fund invests largely in real-estate developments in Nigeria, Ghana, Kenya and Uganda. Many African cities have a ‘massive retail shortage, lack of high-grade office space, deficiency of industrial space and an increasing need for warehousing and logistics centres as retailers start to enter these budding markets’, it says.

    In Luanda and Lagos, a severe lack of decent office space has led to some of the highest office rent in the world, according to global real-estate consultancy Knight Frank’s Africa Report 2013. ‘Prime office rents in Luanda are currently US$150/m2 per month, higher than in London, Hong Kong or New York, while prime rents in Lagos are US$85/m2 per month.’ The report notes that, while ‘extreme cases’, the two cities illustrate the scarcity of office space in Africa.

    Opportunities offered by this shortage, combined with fast economic growth, are attracting the likes of Broll Property Group; Hyprop Investments (South Africa’s third-biggest property company by market value) and a real-estate investment management and development firm RMB Westport.

    Broll has operations in Ghana, Indian Ocean Islands, Kenya, Madagascar, Malawi, Mauritius, Namibia, Nigeria, Zambia and Rwanda, says Malcolm Horne, its group CEO.

    Hyprop Investments, in its 2014 integrated report, stated that it has set aside ZAR3 billion to develop shopping centres in Ghana, Nigeria and Kenya, through Atterbury Africa (a joint venture with Attacq and the Atterbury Group).

    Meanwhile JSE-listed Delta International has launched an African property fund, and Resilient Property Income Fund has introduced Resilient Africa, with partners Standard Bank and Shoprite, to develop properties in Nigeria.Private equity investors such as UK-based Actis are also active in the sub-Saharan property development market.

    Retailers are taking advantage of better economic conditions up north. Take Shoprite, for example: in addition to South Africa, it operates in 14 other African countries where it has 169 supermarkets, with plans to add 30 more stores before June 2015. Its remaining African operations contributed 16.5% to the group’s supermarket turnover for the 2014 financial year.

    Mr Price is expanding to sub-Saharan Africa, with stores in seven countries that contributed 8% to group sales in the first six months of its 2015 financial year. Meanwhile Pick n Pay and Massmart are spreading to the rest of Africa.

    While South Africa has an abundance of shopping malls, the rest of the continent is considered fairly underserviced when it comes to formal retail centres, according to Beattie. Stanlib says 77 malls service the Johannesburg population of 3.8 million, or one per 49 400 people. By contrast, Lagos in Nigeria has one mall per 1.7 million people, while Accra in Ghana has one per 1.15 million people. Nairobi in Kenya has one mall for every 283 000 people, reflecting its more mature real-estate market.

    Ghana, Kenya and Nigeria are the most promising in terms of commercial property development. Nigeria, Africa’s most populous country with the largest economy, has vast potential, and developers are starting to take advantage of ‘second tier’ cities with little or no retail offerings, says Horne.

    However, there is still considerable interest in retail construction in more established cities such as Lagos and Abuja. Nigeria has about 200 000 m2 of prime office space in the development pipeline, which will largely be mixed-use developments, including both leisure and retail elements.

    ‘Some do fall short in quality once delivered. However, for the most part, properties that will be completed in the next few years can be regarded as prime grade on an international scale,’ says Horne.

    The Greater Port Harcourt city and modern Eko Atlantic city are being built on reclaimed sea, according to Deloitte’s African Construction Trends Report 2013.

    ‘These “self-contained” new cities, based on the work-play-live concept, are intended to relieve highly congested metropolises and minimise the need for inhabitants to go into the “centre”,’ states the report.

    Horne says Ghana, the fastest-growing economy in West Africa, has seen an ‘upward surge’ in retail developments since A&C Square was completed in 2005, mainly due to oil and gas sector activities. This, in turn, has led to demand for industrial properties, specifically warehousing and distribution centres.

    ‘In the next 30 months, there is the likelihood of about 100 000 m² of retail space [opening up] in the country and all these are being championed by South African property developers, the likes of RMB Westport, Atterbury Group and Delico Investments,’ says Horne. Many multinationals choose to set up continental headquarters in Nairobi, Kenya, which has become the economic hub of East Africa.

    The retail market in Kenya is thriving, with three major projects under construction – the Hub, Two Rivers and Garden City – as demand is driven by higher disposable incomes and more brand-conscious consumers, says Horne.Meanwhile Kenya is leading the continent’s technology boom. The country has plans to establish itself as Africa’s Silicon Valley through the Konza Technology City project.

    According to Knight Frank, the initiative is expected to cost US$10 billion. With a 2033 deadline, the city will include a technology park, university campus, science park, central business district and residential properties.

    Although the amount of consumers is rising, the number of Africans classified as middle class is unclear. A 2014 Standard Bank report found that this socio-economic group is far smaller than previously estimated.

    According to Standard Bank’s research, the number of middle-class households across 11 major African countries is about 15 million, compared to the widely-bandied 300 million.

    Nevertheless, the demographic has grown by 230% in 2014 from 4.6 million in 2000. Another 14 million households are expected to move into the middle-class category in these 11 countries by 2030, states the report.

    Despite the uncertainty over the numbers, Jones Lang LaSalle finds that rapidly growing middle-class populations in cities such as Lagos, Abuja, Luanda and Accra as well as Nairobi provide ‘considerable pent-up demand from brand-conscious urban consumers who are looking for quality products and a modern shopping experience’.

    Although the continent offers a wealth of opportunities for commercial property development, challenges still exist. Jones Lang LaSalle highlights the lack of transparency in the real-estate market as a major barrier to real-estate construction. The report suggests that the continent could overcome this by improving its regulatory controls and increasing the fairness of the real-estate transaction processes.

    Stanlib points out that property development has been hampered by a lack of access to capital, which has led to a shortage of investment grade properties.

    Horne says securing land can be difficult, while building costs are fairly high and legislation differs from country to country, which poses challenges.

    ‘In Nigeria, many developers are up against hefty land prices, high transaction costs and multiple challenges with lengthy land registration processes,’ he says.

    However, the opportunities on the continent may be worth it. As Knight Frank suggests: ‘For those able to navigate their way through African property markets, there is the promise of high returns and growth potential.’

    By Gene Michelsen
    Image: Juliette Bisset/HSMimages