Africa’s prime real estate markets have posted mixed performances over the last two years, as divergence emerges between growth rates of commodity-exporting and commodity-importing economies in the continent, according to the Knight Frank Africa Report 2017.
The Africa Report – which was launched today at the East Africa Property Investment Summit (EAPI Summit) – showed that the majority of the 35 cities in 30 countries analysed have recorded declines in prime rents across offices, retail, industrial and residential segments since 2015, with Luanda in Angola hit the most, while some cities such as South Africa’s Cape Town posted no change, indicating stability.
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Nonetheless, a significant number of the cities featured in the report recorded prime rental growths over the two years, ranging from 5.5% to 37.5% for Grade A offices, 3.8% to 108% for retail space, 10% to 87.5% for industrial space and 3.6% to 66.7% for prime residential properties. (For standardised comparisons, the Africa Report tracks rents for 4-bedroom executive houses in prime locations in each city covered)
Peter Welborn, Chairman of Knight Frank Africa, said: “Real estate demand stemming from oil companies and the associated services sector has eased in all the African oil-driven markets. Conversely, in the retail sector, the demand across Africa, from the growing middle classes has continued to create a marked increase in activity particularly in the Francophone countries. This increase in tenant demand has encouraged new development schemes to be proposed, with Abidjan (Côte d’Ivoire) providing a really good example of such cities where the planned schemes are supported by offshore investors.
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“With the increasing demand for the best commercial and residential accommodation coming from the growing Africa middle classes, there has been an increasing need for developers to raise the quality of the specification in all the new developments.”
According to data in the Africa Report 2017, Angola’s Luanda remains the most expensive prime office location across Africa despite a significant correction over the past two years. Office rents in the city stand at US$80 per square metre per month, nearly halving from US$150/sqm/month in 2015. Nigeria’s Lagos and N’Djamena in Chad have the next highest prime office rents at US$67/sqm/month and US$55/sqm/month respectively.
In prime retail space, Tunis (Tunisia) posted the strongest growth in rents over the past two years, increasing by 108% to US$26/sqm/month from US$12.5/sqm/month in 2015. Douala (Cameroon) follows with a 66% growth to US$46.5/sqm/month in 2017. Retail rents fell the highest in Antananarivo (Madagascar) since 2015, declining by 57% to US$15/sqm/month, followed by a 50% drop to US$60/sqm/month in Luanda and 46.7% decrease in Dar es Salaam (Tanzania) at US$16/sqm/month.
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DRC’s Kinshasa posted the strongest growth in prime industrial rents over the two years, up 87.5% to US$15/sqm/month, while Luanda’s fell by 52.4% to US$10/sqm/month over the same period.
Malawi’s Blantyre had the highest growth in prime residential rents across Africa, rising by 66.7% to US$2,500 for a 4-bedroom executive house in a prime location, from US$1,500 two years earlier. Tunis in Tunisia and Harare in Zimbabwe recorded the second highest growth at 33.3% each to US$4,000 and US$2,000 per month respectively.
Nairobi’s best performance was noted in prime industrial space, where rents rose by 11.9% over the last two years to US$4.7/sqm/month, while prime retail rents remained unchanged over the period at US$48/sqm/month. However, the city saw prime office rents fall by a fifth since 2015 to US$16/sqm/month, as rent for a 4-bedroom executive house decreased by 13% to US$4,100/sqm/month over the two years.
Ben Woodhams, Managing Director of Knight Frank Kenya, said: “A lot of Grade A office space has come into the market over the last two years and we have seen a significant number of established companies taking advantage of this to trade up space. Industrial rents have risen as a result of a move by developers into the high-end logistics market, whilst the development of a large amount of retail space has meant a stagnation of rents in this sector. Similarly, an over-supply of high-end residential property has led to a slight price correction.”
According to the Africa Report, a growing volume of capital is targeted at Sub-Saharan Africa real estate investment and development, with a series of new investment vehicles being launched in recent years. South African funds are increasingly prominent as they seek to diversify from their domestic market, although a good deal of this interest has been diverted to opportunities in Eastern Europe.
The International Monetary Fund forecast strong 2016 economic growth in countries such as Tanzania (7.2%), Ethiopia (6.5%), Kenya (6%), Rwanda (6%), Senegal (6.6%) and Côte d’Ivoire (8%) – which are all well above the moderate 1.5% forecast for Sub-Saharan Africa. Knight Frank sees potential capital flow into all of these markets, although Rwanda may be limited by its relatively small size and Ethiopia by restrictions on international investment into some sectors.
In addition, rural-to-urban migration is intensifying growth rates in the major cities, with Kampala, Lusaka and Nairobi all growing at more than 4% per annum. The growth of Africa’s cities, combined with economic improvements, is expected to create demand for both better quality and greater volumes of commercial and residential real estate over the long term. Indeed, Nairobi already stands out as a shopping centre development hotspot.
“The challenge for both property developers and investors is to ensure that the impact and timing of planned infrastructure projects on the growth of their capital city is fully understood. Timing and the use mix are a key component to ensure real success,” Welborn said.