Sub-Saharan Africa: real estate insights, trends and investment opportunities

Ikoyi, Lagos.

With the international commercial property sector affected by the pandemic and many African cities struggling with high vacancy rates, there are positive signs of a rebound.

This is according to Swindon Property’s first edition of their African Cities Insights for Q2 for 2021. The report shares local insights, trends, and investment opportunities in the Sub-Saharan African markets they operate in. The report includes five regions namely Lagos, Nigeria; Kenya; Accra, Ghana; Luanda, Angola, and Windhoek, Namibia.

Client advisory for Swindon Property Sub-Saharan Africa, Geoff Kruger, reveals that since these operations in these markets began just over a year ago, they have noted much of the same trends taking place across the continent.

With far fewer international clients entering the office market, the report suggests that most of the leasing activity is coming from space reductions by existing tenants. Landlords are more willing to grant extended rent-free periods of up to six months and beyond, rather than offer prospective tenants a fit-out allowance which has become high in demand versus the shell and core option due to budget restraints.

We have noted that larger companies using the hybrid approach have relinquished on average between 2 000 – 5 000m2 of their office space putting pressure on landlords. Yet, interestingly against the trend is an 8 000m2 office expansion in Lagos, Nigeria, which we have negotiated and concluded for Microsoft, highlighting the demand for good quality, flexible office space in the region but across the board, office rental rates have decreased,” said Kruger.

Prime office rental rates for A+ Grade office space in the most affluent area of Lagos, Ikoyi, has dropped by about 20% from US$780 per square meter in 2017 to USD$630 per square meter in 2021. In Nairobi, prime commercial office rents of USD$11 – USD$12 per square meter per month have also decreased, from USD$13 per square meter per month during the second half of 2020 but, holding steady for A Grade office stock.

The Accra office market in Ghana is readjusting itself to perhaps more affordable levels since 2020’s first quarter when Covid-19 struck. Here, prime rentals have dropped from USD$35 – USD$40 per square meter, per month (exclusive of service charges) to a more competitive average of USD$25 – USD$30 per square meter per month (exclusive of service charges). Landlords are prepared to offer generous incentives such as three to six months’ rent-free periods as well as other tenant incentives.

Swindon Property partnered with international real estate advisor, Savills, in 2020 to become their commercial associate for Sub-Saharan Africa, working closely with Pam Golding Properties across the continent.

We also recently signed up an associate office in Nigeria and we are in discussions with potential associates in Angola, Ghana, and the Ivory Coast, so we have a good grasp of what is happening across the continent,” continues Kruger.

Industrial and retail

The report indicates that there is a large demand for warehousing space. The biggest trend seen by far is at shopping centres with most retail outlets having reduced their floorspaces. While less people are vising malls, there is a notable increase in strip malls, especially in Nairobi, Kenya, as it seems to offer easier access with less security checks.

Retail space in Nairobi’s malls range between USD$18 – USD$23 per square meter per month. Big retailers like Shoprite have exited Nigeria, opening the door for Pick n Pay, South Africa’s second largest retailer by market cap, to make its long-anticipated entry into the country.

In Ghana, the average rent at Accra Mall is around USD$55 per square meter per month – a little higher than other malls in the city at USD$37 per square meter per month. Overall, Ghana’s economy has remained relatively stable from a demand perspective with good growth in areas of distribution, manufacturing, and data centres.

However, Angola’s economy continues to struggle, and it has been slow to respond to the pandemic, recording a fourth year of recession. Here, office rent has decreased dramatically over the past five years as multinationals continue to leave or decrease their space requirements, dropping from USD$150 per square meter at the beginning of the last decade.

Energy companies who have always paid the highest rents are now refusing to even pay USD$100 per square meter per month. Despite this though, there is hope that Angola’s retail sector can drive economic growth during the next quarter. It has always had some significant singularities in the local market with the shortage of supply being slowly addressed. Retail rentals can range from USD$20 – USD$90 per square meter depending on quality and location.

Windhoek is Namibia’s largest city and the four years of economic recession (prior to Covid-19) has had a huge impact on its real estate market which has contracted about 50% over the past six years and it requires real growth to recover. To make matters worse is that local commercial banks are reluctant to finance new transactions.

Besides low cost and affordable housing schemes, there are currently no new residential, office, retail, or industrial developments in progress. There is a slight over supply with both Standard Bank and Nedbank moving out of rental properties and into their own newly developed head offices.

Average rental rates in Windhoek range between USD$11 per square meter for A Grade offices to USD$8.50 per square meter, depending on the property and there are opportunities for future commercial development in the expansion and development of Walvis Bay Harbour.

As mass vaccination programmes roll out and pandemic restrictions begin to ease, we should see investor confidence returning to the sub-Saharan Africa region bringing with it an increase in rental enquiries in all property sectors. The oversupply of B Grade offices opens many opportunities for tenants to get the properties they desire at a competitive price,” concludes Kruger.