Warnings for investors in sub-Saharan Africa, but things could improve
South African commercial property investors and occupiers are being urged to mitigate risk when considering real estate investments in some sub-Saharan African countries.
This is due to slowing growth in property developments and investments in these countries due to low GDP growth rates.
The Broll Property Group says that GDP growth in sub-Saharan Africa is expected to reach around 2.6% this year on the back of a modest recovery in commodity prices, stable oil prices, positive economic interventions and political reforms, and rebalancing of foreign exchange.
“As a result, we are seeing investors and occupiers looking at carefully balancing and mitigating risk when assessing new deals,” says Leonard Michau, Broll’s director and head of Africa operations.
But when these economies start growing, the real estate markets will provide numerous investment opportunities for investors with long-term strategies.
For example, Michau notes that, following a long period of sluggish activity in the Nigerian office market, there are signs of a gradual uptick in demand, with occupiers beginning to take advantage of increased competition in the A-grade office market. Some corporate occupiers have moved from B-grade and stand-alone buildings as a result of more attractive rentals and incentives from landlords.
Currently the South African office sector, estimated to measure around 18 million m² according to the South African Property Owners Association, is experiencing “a degree of pressure” as a result of the economic conditions. Prime gross achieved rents in major metropolitan areas average between R165/m² to R200/m² a month. Some nodes are achieving close to R250/m² a month.
“Occupiers will increasingly take a more activist approach to portfolio optimisation in 2017 and beyond, and will pursue a focus on amenity-rich locations and buildings to retain talent.
“This is because of growth in the millennial cohort of the workforce, increased adoption of flexible and agile work patterns and a focus on general health and well-being in the workplace.”
Michau adds that despite challenges facing the m² retail sector, retailers are set to continue their expansion plans in 2017, albeit cautiously with many sticking to tried-and-tested profitable markets.
The industrial sector is also uniquely positioned to benefit from structural changes such as online retailing that has forced a transformation of global supply chains and will continue to act as a significant engine for growth.
According to the CBRE Global Outlook Report, global online retailers require on average three times more space than traditional warehouse users, and for $1billion (about R13bn) of new online retail sales, an additional R93000m² of new distribution space is needed. Given current online retail growth forecasts, he says this translates to an annual average of 3.7 million m² of new warehouse demand between 2017 and 2020.
“Investment opportunities also exist in the hospitality and student housing accommodation sectors while growth in African cities will in turn spur growth in real estate markets and open up more opportunities for both investors and occupiers.”