Africa rising (again)
The real estate investment case for the African continent may no longer be as compelling, but there are pockets of opportunity
Five years ago, private equity investors, developers and JSE-listed property funds couldn’t get into the rest of Africa fast enough. Africa was punted as the next big growth story.
At the time, a key attraction for SA real estate players was the potential to tap into a rapidly growing middle class in a vastly undersupplied market. Tenants in most countries north of SA’s borders were typically paying rentals in US dollars (or equivalent rates) — an added bonus, as it provided the potential to earn hard-currency income and capital growth.
By June 2014, no fewer than seven JSE-listed property companies had entered other countries on the continent: Tradehold, Mara Delta (now Grit Real Estate), Rockcastle (now merged with Nepi), Trustco, Hyprop Investments, Attacq and Resilient Reit.
But a year later the African euphoria was dimmed by the sudden shift in the continent’s economic growth outlook on the back of the oil and commodity price slump.
That was followed by wild swings in local exchange rates, which made it difficult for property owners to justify charging dollar-based rentals. As a result, most SA property players were forced to reassess their African investment strategies — some withdrew completely, while others placed expansion plans on hold.
However, it appears that the winds of change are blowing through Africa yet again. Marna van der Walt, CEO of global real estate group Cushman & Wakefield Excellerate (CWE), says a recovery in several African economies is under way, supported by peaceful political changes and the introduction of sound trade and investment policies.
At the launch of the 2018 Africa Report, published last week by CWE in partnership with development economists Urban-Econ, Van der Walt said: "There is a renewed sense of purpose on the continent, a willingness for economic and social upliftment underpinned by stable and ethical government."
She said that despite African countries having faced their share of challenges over the past two years, there were still many development opportunities worth exploring.
However, she warned investors to be cautious: "Many African countries remain poorly understood. Despite high economic growth rates, these are small economies. So opportunities, risks and potential returns need to be assessed on a city-to-city basis."
The 2018 Africa Report, which looks at trends affecting the commercial, industrial and retail property sectors in 10 countries, highlights eight African cities to watch. These are Accra, Dar es Salaam, Harare, Durban, Walvis Bay, Lagos, Mombasa and Port Louis.
Jonathan Turner, CWE’s general manager of global occupier services in Africa, says Accra’s key attraction is its natural resources and political stability. "GDP growth recovered to pre-2011 levels and this is expected to continue in the short term," he says.
Referring to Dar es Salaam, Turner says Tanzania is experiencing the second-fastest GDP growth in Africa. That, in turn, has resulted in a property boom.
Durban, home to Africa’s busiest port, is also poised for a strong uplift, which will be driven by an abundance of reasonably priced development land and a good road network.
Turner says that a year ago Harare would have been an unlikely candidate as a city to watch. However, political change has already had a positive effect, with increased demand for all types of commercial property.
"Harare’s CBD is now gearing up for a strong inflow of retail activity," says Turner.
Lagos remains one of the fastest-growing cities in the world. The city’s new Lekki Free Trade Zone alone is expected to accommodate 3.4m residents.
Mombasa is on CWE’s list because it is in one of Africa’s top-performing economies, with GDP growth of around 6% in 2017.
Turner says the Mauritian capital of Port Louis is undergoing a rebirth of sorts and has had investments in renewable energy and technology. Mauritius is rated best in Africa for investment freedom, regulatory efficiency, rule of law and competitiveness.
Walvis Bay also appears favourably on the political stability front. More importantly, its natural deep-sea port creates a global link for several landlocked African countries.