Business
Top 5 Real Estate Opportunities In Sub-Saharan Africa
A real estate boom is a natural byproduct of emerging market growth via rapid urbanization and expanding middle classes. As growth moderates, particularly as seen in Asian markets, the rate of construction activity remains rapid, according to the PWC report “Real Estate 2020”, only boosting investment opportunities. The report notes that, by 2025, over 60 percent of all construction activity is forecasted to take place in emerging markets up from just 35 percent in 2005, with sub-Saharan Africa trailing only emerging Asia.
The commercial sub-sector of the real estate industry provides great opportunity for returns as Africa’s economic boom is sustained. Of the near 23 million sq m in shopping malls in Africa, 21 million sq m sits in South Africa and 0.5 million Square meters is in sub-Saharan Africa (excluding South Africa). Similar figures are found in the office space subsector – 2 million sq m in sub-Saharan Africa (excluding South Africa) as compared to 4 million sq m in North Africa and 15 million sq m in South Africa.
Navigating a blank slate in many instances, real estate investors approach the continent with the mixed ambition of Michelangelo and Donald Trump. Yet, as any veteran real estate investor will characterizes the “Africa opportunity”, commercial real estate can surely earn north of 25 percent per annum returns, but only after navigating unexpected hurdles, including poor urban planning, unfinished neighboring infrastructure (i.e., unpaved roads), and unreliable local developers. If you can stomach the risk and find the right partners, these five countries offer the greatest opportunity:
Nigeria
On the surface, Nigeria is the real estate investor’s dream canvass. It is Africa’s second largest economy (soon-to-be first by many accounts) with burgeoning middle class. Its 170 million-plus population loves to shop and consume. As companies flood the market, office space is lacking, such that prime office space rents as high as $85 per square meter, according to local renters.
The Ikeja City Mall, a 28,522 square metrers mall in Lagos, which was backed by London-based private equity firm Actis in 2011, is unofficially considered the second mall to open in the country. Numerous malls have opened throughout the country since 2011. Even the recent boon in commercial space might not meet Nigeria’s rapidly growing demand.
Still, investors must approach with caution. Corruption and regulatory ordeals come without warning. Joining with a strong local partner is accordingly necessary to avoid the downward spiraling effect of a reactionary approach among unexpected obstacles you can assume to come.
Kenya
The growth of Kenya’s middle class and the country’s robust economy bids well for commercial real estate. The country may not see the same growth in malls experienced in South Africa. But the country is starting to hit a similar trajectory as economic growth projects well for the long term and tourism finds its footing again after the Westgate Mall terror attack.
Office rents have moderated as office space supply, as reported in Kenya’s the Star, will exceed demand by 2016. But, as one local investor characterized it, building malls surpasses office spaces on the investor’s profitability meter based on Kenyan spending and natural returns per annum that follow from it.
