Industrial Warehouses in Nairobi, Kenya. Image credit: Broll
According to a recent CBRE Global Investor Intentions Survey 2015 , 53% of global investors plan to increase their investment purchases this year. Investor appetite for cross-regional acquisitions has increased significantly with 38% of respondents intending to invest outside their own region in 2015, up from 28% in 2014.
In Africa, investments are also increasing as investors search for better yields, points out Elaine Wilson, Divisional Director: Research at Broll Property Group. “Investments in South Africa are mostly driven by the strong local listed property sector while in other countries, real estate investments are driven by international companies looking to invest in the oil and gas industries as well as natural resources.”
Furthermore, she explains that in the SADC region, countries such as Mozambique and Angola (due to oil and gas) have seen renewed interest from international investors while SA is still seen as the gateway into Africa. However, political stability, sound economic policies and investor friendly legislation is of utmost importance in attracting and retaining investors in any part of Africa.
Kenya in East Africa continues to see an influx of investors especially those looking for real estate assets to apply to their new REITs, says Jonathan Yach, Broll Kenya CEO and Head of East Africa Operations.
Yach says they anticipate an increase in property developments in various counties as government continues to drive the devolution process. County land values and opportunity is within reach for investors looking to make a difference in the market.
Nairobi County remains the key business hub for major organisations due to the higher levels of development and infrastructure in place.
Despite macroeconomic challenges and currency depreciation, Nigeria in West Africa shows that long-term economic and demographic fundamentals are a strong attraction for institutional investors.
Lagos’ office sector which was undersupplied a few years ago has seen sizable additions of prime office space in the past year, with a further 80,000m2 expected over the next 12 months, says Bolaji Edu, Broll Nigeria CEO.
“We expect that there will more investment activity this year than in recent years – with the focus on the retail and office sectors from international and indigenous investors.”
The CBRE Global Survey notes that although London retains its position as the top city for investment, there is also a marked increase in appetite among investors from Europe, Middle East and Africa (EMEA) and North America for value-add and opportunistic investments.
“The appetite for global real estate investment is increasing as more investors intend to deploy capital outside of their own region this year. Competition for assets is intensifying and many investors plan to move out the risk curve in search of higher yields–a trend that will result in a stronger focus on value-add and opportunistic investments,” says Chris Ludeman, Global President, CBRE Capital Markets.
What investors buy in Africa?
According to Wilson, investors generally enter the African market through formal retail, thanks to increased consumers”, increased retail facilities thus leading to increased demand for warehousing space and distribution centres.
In Kenya, office and retail properties are sought-after with many international companies either looking to set up offices in Nairobi or are expanding their current office offerings.
As in the SADC region, Kenya’s retail sector is experiencing exponential growth while the industrial sector is seeing a much higher demand for modern warehousing which currently outstrips supply.
Meanwhile in Nigeria, office and retail properties remain the most preferred asset classes for investments. Edu points out that the office sector has seen strong demand in the past few years. A number of developers and investors are taking advantage of the lack of prime properties hence the addition of A-grade office properties onto the market.
However, increased supply is creating a more competitive tenant friendly environment, in a market which was previously dictated by landlords.
Rents in Lagos are among the highest in Africa and attractive to prospective investors,” says Edu.
Retail is an attractive investment opportunity particularly from investors who wish to benefit from the growing middle class and increased disposable income, he says.
Price and availability of investment assets
On price and availability of assets, Wilson notes that good quality stock is scarce and as a result, most investors will look at developing their own assets. However, lack of infrastructure, land tenure issues as well as high construction costs put a damper on new developments and increased the price of assets, she explains.
Edu says in Nigeria, availability is often a concern for investors looking to buy prime assets, as currently, there is limited investment grade stock available for purchase with a small number of transactions taking place annually.
“Price is also an issue – high rentals mean that the capital value per square metre is high compared to other similar locations/countries,” according to Edu.
Overall, Broll anticipates an increase in investments in Sub-Saharan Africa, however, challenges of doing business in some countries remain. For example, South Africa has recently introduced new Broad-Based Black Economic Empowerment (B-BBEE) codes, up north, Zimbabwe’s economy if failing, while falling oil prices led to infrastructure projects being put on hold in Angola and political unrest in the northern gas rich areas of Mozambique may make investors to rethink their investment strategies.
“In general African markets are still immature, however, growing investor interest will increase the state of the commercial property market with time,” adds Wilson.
Broll Property Group, Part of the CBRE Affiliate Network