African markets are fast evolving. In the information economy, adoption of new ideas and technologies are occurring at unprecedented rates. In the midst of all the buzz in the markets, there are key trends to note. According to API Events, below are ten of the most notable trends shaping the African real estate scene:
In 2009, there were only six African countries listed on JLL’s real estate transparency index, today it stands at 15 and counting.
“Transparency is increasingly important for commercial real estate, where investors are allocating ever more capital,” said Jeremy Kelly, Director, Global Research, JLL at the API Summit in 2018. “The availability and quality of information – from prices to ownership – is crucial when trying to make investment decisions, especially in new markets.”
- Market Formalization
Increased interest and activity in Africa’s most attractive real estate markets has resulted in the harmonization of the sector through the development of local and regional industry associations, events and awards.
The development of local industry associations and events aids in unifying and formalising each market by bringing all stakeholders together under one umbrella. For investors, this increases transparency and sophistication, while also providing synergies for the private sector to engage with the public sector. These platforms provide best practice case studies, unique insights, and an opportunity for the industry to grow, secure investment, foster market sentiment and improve the international perception of the value of African real estate as an asset class.
- Capital Market Growth
Inspired by success of South African Real Estate Investment Trusts (REITs), there has been significant growth in REITs development and promulgation across the continent. This has included the debut of Stanlib’s Fahari I-REIT in Nairobi; and both Ghana and Uganda introducing and passing legislation enabling the establishment of REITs over the last two years.
Other notable capital market gains or mentions include, Nigeria listing their first real estate linked Bond on the FMDQ exchange and Botswana’s listed property sector which now has over seven trading counters.
With signs of pressure increasing on the global REITs market, currently valued at $1.2 Trillion by Morningstar Investments, Africa’s listed REITs market provides a new avenue for investors seeking higher returns and pockets of growth.
Established and well governed African REITs will drive investment from local, regional and institutional investors and would provide an effective and a strategic vehicle for pension fund investment across the continent.
- A Focused Africa Centric Investment Strategy
The past 24 months has seen the rise of specialised and sector specific real estate investment platforms established to develop African-centric asset classes in logistics, healthcare, affordable housing and hospitality. Some of the standout platforms have included African Logistics Properties (ALP) in Kenya, which secured funding from institutional investors such as (CDC) and recently Standard Bank, as well as Actis’ dedicated hotel investment platform with Westmont, their Affordable Housing platform with Shapoorji Pallonji from India and their joint venture with Improvon (a specialist warehouse developer).
The development of specialised vehicles to achieve African development priorities is proof of a maturing and more nuanced market. Future success will be achieved by developers with narrower and specific offerings with longer-term investment horizons, which Africa’s expanding institutional class of investors can participate in.
- Increasing Influence of Africa’s Pension Funds
Policy reform in key markets (Botswana, Kenya, Nigeria and Zambia) and economic maturity are enabling Africa’s pension funds to expand their real estate and infrastructure allocations, both in home markets and abroad, providing the foundation for pension funds to be the key funding driver for Africa’s built-environment growth.
Pension Fund capital is long term in nature (10 + Years) and can better withstand currency and emerging market volatility, thereby positioning it as the ideal partner to develop and fund Africa’s housing and infrastructure deficits. In a challenging global macroeconomic environment; increased asset ownership by homegrown savers provides an opportunity for Africans to own and direct built environment strategy and improve stability, while also improving the international perception and value of African markets as maturing long-term investment destinations.
- Greater Public Sector Support
Traditionally viewed as a hindrance by the private sector, many governments are aggressively targeting the construction and housing sectors as economic priorities. Arguably, the biggest example of this transformation has been by Kenyan President Uhuru Kenyatta’s pledge to build more than 500 000 homes in his next term of government.
In developing markets, the state remains a key role player in attracting and obstructing capital investment. If Africa is ever to reduce its infrastructure deficit, including access to housing, its public sector leaders need to actively pursue, participate and partner with the real estate sector and create a more enabling environment for sector growth and investment.
Africa’s PropTech sector is booming with pioneering founders attracting funding and providing value to Africa’s real estate sector.
“Africa has an opportunity at this point to utilise blockchain for land registries or transactions, ‘smart’ buildings and infrastructure for facilities management or repair, or new database capabilities for collaborative data sharing between market participants to jumpstart the traditional methods of improving market data and building real estate markets that are fit for the future,” said JLL’s Jeremy Kelly.
PropTech enables better decision making by providing investors and developers with more relevant and useful data. In markets lacking historical and transparent market data, the rapid increase and availability of data can drive higher levels of investment from institutional and private equity sources both African and international.
- Green Development
Green building technologies increases transparency, reduces long term costs and improves asset value in the short and long term. Building Green also enables developers to secure access to new types of emerging funding such as green bonds.
Green Councils have been established in Mauritius, Kenya, Rwanda, Zambia, Ghana, Tanzania and Namibia with more expected across the continent. The World Bank’s IFC EDGE and the LEED green programmes are being adopted by major developers across the continent. Notable green certified developments; include Heritage Place, Lagos; Vienna Court and Garden City Nairobi, Takoradi Mall, Accra; Logistics (ALP North Kenya) and Affordable Housing by Echostone Housing in Nigeria among many others.
- Increasing Global Interest
Ten years of maturity, data and proven success stories across multiple sectors and jurisdictions has helped to provide more certainty and is key to de-risking the investment case.
Changing the perception of Africa is critical to achieving sustainable Investment and driving inclusive economic growth. Examples over the past year has been Grit Real Estate Income Group’s listing on the London Stock Exchange and Nairobi’s listing in the top 10 of Jll’s World’s Cities Momentum Index, the only African city to appear on the list.
Africa has a unique opportunity now, but progressive measures need to be taken to increase liquidity and market maturity in order to attract large scale investment in the next three to five years.
- Indigenous Developers
One of the most eye-catching trends has been the rise of indigenous developers upending the traditional narrative and proving how local expertise matched with fresh funding can create and unlock value in multiple jurisdictions.
Increasing the exposure of successful African developments will in future unlock funding and greater government support and help build the future we want in Africa.