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African real estate growth

African real estate undergoes rapid growth this year – Report

Africa is no longer viewed as a region of long-term economic distress, but is increasingly seen as a continent of opportunity. Africa’s population boom is creating demand for residential property, ranging from mass market affordable housing to high-end luxury properties. In a research by Knight Frank tagged “Knight Frank Africa Report”, it stated that Nigerian real estate will experience rapid growth this year. Writes RAJI ADEBAYO

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With Africa’s positive story driven by demographic trends and urbanisation prospects, the continent’s rapidly growing economies are catching the attention of increased numbers of property investors and corporate occupiers in sub-Saharan region especially in Nigeria.

United Nations projections suggested that the population of Africa will almost quadruple to more than four billion by 2100, with nearly one billion of these people in Nigeria alone. This is arguably the single most important demographic trend that will shape the world over the course of this century.

Sub-Saharan Africa’s largest cities are some of the fastest-growing urban areas in the world. UN forecasts suggested that the populations of Lagos, Kinshasa and Luanda will all grow by more than 70 per cent during the 2010-2025 period, while Dar es Salaam, Kampala and Lusaka are expected to double. By most estimates, Lagos has already overtaken Cairo as Africa’s biggest city and its population may be close to 40 million by 2050, making it a true global megacity.

According to the latest market report by Knight Frank, Africa Report 2015, the growth of Africa’s cities is creating a need for increased volumes of good quality commercial and residential real estate of all types. Retail property development has been encouraged by the rise of the urban middle class, as well as the expansion of South African retailers such as Shoprite and Pick n Pay into the rest of Africa.

Increased numbers of multinational companies are seeking offices in African cities, generating demand for high quality space, particularly in key regional hubs such as Lagos and Nairobi. The oil and energy sector is an important driver of activity in many of Africa’s most dynamic office markets. Demand from this sector, combined with an extreme lack of supply, has made Luanda in Angola one of the most expensive office markets in the world, with prime rents at US$150 per square metre per month. Likewise, recent offshore gas discoveries have driven construction activity and rental growth in Mozambique’s capital, Maputo.

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Africa’s population boom is creating demand for residential property, ranging from mass market affordable housing to high-end luxury properties. Attempting to address this, there have been numerous announcements in recent years of ambitious large-scale satellite city projects across Africa, mostly by private developers. However, many of these projects have experienced significant delays and Eko Atlantic, being built on reclaimed land off the coast of Lagos, is one of the few to have made demonstrable progress with its construction.

In fact, the report says that Africa’s economic growth began to accelerate around the turn of the century, following several decades of economic stagnation. Since 2000, Africa has averaged growth of over 5 per cent per annum, with the Sub-Saharan region averaging growth of close to 6 per cent. The larger emerging economies of this region, such as Nigeria, Kenya, Angola and Ethiopia, have increasingly been the key drivers of the continent’s growth.

Nonetheless, the economic outlook for many African economies has been clouded by the steep fall in oil price that started in the middle of 2014 and continued into 2015. The International Monetary Fund has revised downwards its GDP growth forecasts for Africa and now expects sub-Saharan growth to be below 5 per cent in 2015. The short term outlook for Nigeria, in particular, has weakened

Accordingly, sub-Saharan GDP growth is forecast to move back above 5 per cent in 2016, and to strengthen in subsequent years. “This suggests that, as many African economies have diversified and reduced their dependency on commodities, the recent collapse in oil prices may have a less severe impact on Africa than historical commodity price downturns. With sectors such as telecommunications and financial services being increasingly important drivers of growth, Africa will maintain its position as one of the world’s fastest growing economic regions.”

The report also pointed out that by global standards; most property investment markets in Africa are opaque and small. The exception is South Africa, which is by far the continent’s largest and most mature market. Other Sub-Saharan markets are now attracting increased interest from international investors, but the most noteworthy flow of capital in recent years has been from South Africa into the rest of the Sub-Saharan region, as a growing number of funds have been established by South African developer/investors targeting the rest of the continent.

A prominent example is RMB Westport, affiliated to Rand Merchant Bank, which Real Estate Development Fund was closed in 2012, having raised US$250 million, and is involved in office and retail projects in Nigeria, Angola and Ghana.

Other South African-based investors targeting the rest of Africa include Sanlam, Stanlib, Atterbury, Resilient, Ivora Capital, Delta International and Novare. A recent entrant is the Momentum Africa Real Estate Fund, which was launched in January 2015 with a US$250 million equity goal, and has a focus on Ghana, Kenya, Nigeria, Mozambique, Rwanda and Zambia.

Investment in African real estate by international investors is limited, although the UK-based emerging market specialist Actis has been a trailblazer in Africa since establishing its first Sub-Saharan property fund in 2006. Actis launched its second Africa Real Estate Fund in 2012, and has begun to exit from its first wave of investments, selling its interests in Accra Mall to Sanlam and Atterbury in 2012; and Amani Place in Dar es Salaam to Sanlam in 2013. Several other well- established international institutional investors are known to be seriously investigating African markets and planning investment strategies.

Conversely, Lagos residential market is showing signs of increased activity, even at the top end of the luxury market, which is characterised by apartments in Ikoyi priced in excess of US$1 million. The mid-market is also performing healthily, with well- priced and well-located estates selling quickly off-plan.

However, residential developments in secondary locations continue to sell slowly, within central Abuja, the cost of apartments depends very much on whether they are considered suitable for the expatriate market. Most locals are priced out of central Abuja, and thus their demand is focused on satellite towns. The capital city Abuja is a much smaller office market than Lagos, with limited international corporate demand. The World Trade Center and Churchgate buildings are likely to satisfy demand for Grade A office space in Abuja for the foreseeable future.

The availability of good quality office space in Lagos is improving, with several Grade A schemes under construction, especially along Kingsway in Ikoyi, including Actis/Laurus’ Heritage Place and Capital Alliance’s Kingstower. Additionally, RMB Westport’s Wings development, due for completion in 2016, will provide prime space on Victoria Island, although one of its two towers has been pre-let to Oando. Over the longer term, the Eko Atlantic project is likely to have a huge impact on the market, bringing a large amount of new commercial space.

“Actis pioneered modern shopping mall development in Nigeria, building the Palms Mall in Lagos in partnership with the Persianas Group, and Ikeja City Mall. There is still considerable room for further development, and a number of local operators such as Artee Group are seeking to roll out smaller mall concepts across Nigeria.

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